Answer from Lana lana[guru]
Monopoly in the economy.
Plan.
1. Introduction.
2. The concept of natural monopoly.
3. State and natural monopolies.
4. Methods of regulation of natural monopolies.
Introduction.
Before proceeding directly to the analysis of natural monopoly, it is necessary to imagine a market model of imperfect competition, within which there is a monopoly, one of the types of which is a natural monopoly. Basically, the best way characteristics of the imperfect competition market model is to compare the latter with the perfect competition market model and identify the differences between them. Therefore, in my opinion, it is necessary first to say a few words about the perfect competition market, which, in principle, is an ideal model, since it does not exist in reality. So, the market model of perfect competition is characterized by the following features:
1. the presence on the market of many independent sellers and buyers, each of which produces or buys only a small share of the total market volume of this product;
2. homogeneity of goods and the same perception by buyers of sellers;
3. the absence of entry barriers for entry into the industry of new manufacturers and the possibility of free exit from the industry;
4.full awareness of all market participants;
5.rational behavior of all market participants.
Now, based on the differences in the above points, we will try to outline a model of the imperfect competition market.
Speaking about the market of imperfect competition, one can delve into the analysis, for example, of oligopoly or monopolistic competition, which are real subjects of the imperfect competition market, however, it is not our task to touch upon, let alone analyze, these subjects, therefore, we will restrict ourselves to considering the features of pure monopoly. So what is a monopoly? In principle, a monopoly can be characterized as a market structure in which one firm is the supplier to the market of a product that has no close substitutes. It follows from this characteristic that the product of a monopoly is unique in the sense that there are no good or close substitutes for this product. From the buyer's point of view, this means that there are no viable alternatives, leaving the buyer to either buy the product from the monopolist or do without it. In contrast to the subject of the market of perfect competition, which "agrees with the price", the monopolist dictates the price, that is, exercises significant control over the price. And the reason is obvious: it produces and therefore controls the total supply. With a downward-sloping demand curve for its product, the monopolist can cause a change in the price of the product by manipulating the quantity of the product supplied.
One of the most important distinguishing features of a monopoly is the presence of barriers to entry, that is, restrictions that prevent additional sellers from entering the monopoly firm's market. Barriers to market entry are necessary to maintain monopoly power. If free entry to monopolized markets were possible, then the economic profits earned by monopoly firms would attract new producers and sellers. Monopoly control over price would eventually disappear as markets became competitive. Among the main types of barriers to market entry that enable monopolies to emerge and help maintain them are the following:
1. Exclusive rights received from the government. For example, local authorities authorities often allow a single firm to install cable TV systems. Authorities usually grant a monopoly on the right to provide transport services, communication services, as well as basic utilities such as public hygiene, electricity, water supply and sewerage, gas supply. In France, since 1904, the funeral business has been controlled by General Funerals, a monopoly
A perfectly competitive market is characterized by the following features:
Firms produce the same, so that consumers do not care which manufacturer to buy it from. All products in the industry are perfect substitutes, and the cross-price elasticity of demand for any pair of firms tends to infinity:
This means that any arbitrarily small increase in the price of one producer above the market level leads to a reduction in demand for his products to zero. Thus, the difference in prices may be the only reason for preferring one or another firm. No non-price competition.
The number of economic entities in the market is unlimited, and their share is so small that the decisions of an individual firm (individual consumer) to change the volume of its sales (purchases) do not affect the market price product. In this case, of course, it is assumed that there is no collusion between sellers or buyers to obtain monopoly power in the market. The market price is the result of the combined actions of all buyers and sellers.
Freedom to enter and exit the market. There are no restrictions and barriers - there are no patents or licenses restricting activity in this industry, significant initial investments are not required, the positive effect of scale of production is extremely small and does not prevent new firms from entering the industry, there is no government intervention in the mechanism of supply and demand (subsidies , tax incentives, quotas, social programs, etc.). Freedom of entry and exit absolute mobility of all resources, freedom of their movement territorially and from one type of activity to another.
Perfect Knowledge all market participants. All decisions are made in certainty. This means that all firms know their income and cost functions, the prices of all resources and all possible technologies, and all consumers have complete information about the prices of all firms. It is assumed that information is distributed instantly and free of charge.
These characteristics are so strict that there are practically no real markets that would fully satisfy them.
However, the perfect competition model:
- allows you to explore markets in which a large number of small firms sell homogeneous products, i.e. markets similar in terms of conditions to this model;
- clarifies the conditions for profit maximization;
- is the standard for evaluating the performance of the real economy.
Short-run equilibrium of a firm under perfect competition
Demand for a perfect competitor's product
Under perfect competition, the prevailing market price is established by the interaction of market demand and market supply, as shown in Fig. 1 and defines the horizontal demand curve and average income (AR) for each individual firm.
Rice. 1. The demand curve for the products of a competitor
Due to the homogeneity of products and the presence of a large number of perfect substitutes, no firm can sell its product at a price even slightly higher than the equilibrium price, Pe. On the other hand, an individual firm is very small compared to the aggregate market, and it can sell all its output at the price Pe, i.e. she has no need to sell the commodity at a price below Re. Thus, all firms sell their products at the market price Pe, determined by market demand and supply.
Income of a firm that is a perfect competitor
The horizontal demand curve for the products of an individual firm and the single market price (Pe=const) predetermine the shape of the income curves under perfect competition.
1. Total income () - the total amount of income received by the company from the sale of all its products,
represented on the graph by a linear function with a positive slope and originating at the origin, since any sold unit of output increases the volume by an amount equal to the market price!!Re??.
2. Average income () - income from the sale of a unit of production,
is determined by the equilibrium market price!!Re??, and the curve coincides with the firm's demand curve. By definition
3. Marginal income () - additional income from the sale of one additional unit of output,
Marginal revenue is also determined by the current market price for any amount of output.
By definition
All income functions are shown in Fig. 2.
Rice. 2. Competitor's income
Determination of the optimal output volume
Under perfect competition, the current price is set by the market, and an individual firm cannot influence it, since it is price taker. Under these conditions, the only way to increase profits is to regulate the volume of output.
Based on the existing this moment time of market and technological conditions, the firm determines optimal output volume, i.e. the volume of output that provides the firm profit maximization(or minimization if profit is not possible).
There are two interrelated methods for determining the optimum point:
1. The method of total costs - total income.
The firm's total profit is maximized at the level of output where the difference between and is as large as possible.
n=TR-TC=max
Rice. 3. Determination of the point of optimal production
On fig. 3, the optimizing volume is at the point where the tangent to the TC curve has the same slope as the TR curve. The profit function is found by subtracting TC from TR for each output. The peak of the total profit curve (p) shows the volume of output at which profit is maximized in the short run.
From the analysis of the function of total profit, it follows that total profit reaches its maximum at the volume of production at which its derivative is equal to zero, or
dp/dQ=(p)`= 0.
The derivative of the total profit function has a strictly defined economic sense is the marginal profit.
marginal profit ( MP) shows the increase in total profit with a change in output per unit.
- If Mn>0, then the total profit function grows, and additional production can increase the total profit.
- If Mn<0, то функция совокупной прибыли уменьшается, и дополнительный выпуск сократит совокупную прибыль.
- And, finally, if Мп=0, then the value of the total profit is maximum.
From the first profit maximization condition ( MP=0) the second method follows.
2. The method of marginal cost - marginal income.
- Мп=(п)`=dп/dQ,
- (n)`=dTR/dQ-dTC/dQ.
And since dTR/dQ=MR, a dTC/dQ=MC, then total profit reaches its maximum value at such a volume of output at which marginal cost equals marginal revenue:
If marginal cost is greater than marginal revenue (MC>MR), then the company can increase profits by reducing production. If marginal cost is less than marginal revenue (MC<МR), то прибыль может быть увеличена за счет расширения производства, и лишь при МС=МR прибыль достигает своего максимального значения, т.е. устанавливается равновесие.
This equality valid for any market structures, however, in conditions of perfect competition, it is somewhat modified.
Since the market price is identical to the average and marginal income of a firm that is a perfect competitor (РAR=MR), then the equality marginal cost and marginal revenue is transformed into the equality of marginal cost and price:
Example 1. Finding the optimal volume of output in conditions of perfect competition.The firm operates under perfect competition. Current market price Р=20 c.u. The total cost function has the form TC=75+17Q+4Q2.
It is required to determine the optimal output volume.
Solution (1 way):To find the optimal volume, we calculate MC and MR, and equate them to each other.
- 1. MR=P*=20.
- 2. MS=(TC)`=17+8Q.
- 3.MC=MR.
- 20=17+8Q.
- 8Q=3.
- Q=3/8.
Thus, the optimal volume is Q*=3/8.
Solution (2 way):The optimal volume can also be found by equating the marginal profit to zero.
- 1. Find the total income: TR=P*Q=20Q
- 2. Find the function of total profit:
- n=TR-TC,
- n=20Q-(75+17Q+4Q2)=3Q-4Q2-75.
- 3. We define the marginal profit function:
- Mn=(n)`=3-8Q,
- and then equate Mn to zero.
- 3-8Q=0;
- Q=3/8.
Solving this equation, we got the same result.
Short-term benefit condition
The total profit of the enterprise can be estimated in two ways:
- P=TR-TC;
- P=(P-ATS)Q.
If we divide the second equality by Q, then we get the expression
characterizing the average profit, or profit per unit of output.
It follows that a firm's profit (or loss) in the short run depends on the ratio of its average total cost (ATC) at the point of optimal production Q* to the current market price (at which the firm, a perfect competitor, is forced to trade).
The following options are possible:
if P*>ATC, then the firm has a positive economic profit in the short run;
Positive economic profit
In the figure, total profit corresponds to the area of the shaded rectangle, and average profit (ie profit per unit of output) is determined by the vertical distance between P and ATC. It is important to note that at the optimum point Q*, when MC=MR, and the total profit reaches its maximum value, n=max, the average profit is not maximum, since it is determined not by the ratio of MC and MR, but by the ratio of P and ATC.
if R*<АТС, то фирма имеет в краткосрочном периоде отрицательную экономическую прибыль (убытки);
Negative economic profit (loss)
if P*=ATC, then economic profit is zero, production is breakeven, and the firm earns only normal profit.
Zero economic profit
Termination Condition
In conditions when the current market price does not bring positive economic profit in the short term, the firm faces a choice:
- or continue unprofitable production,
- or temporarily suspend its production, but incur losses in the amount of fixed costs ( FC) production.
The firm makes a decision on this issue based on the ratio of its medium variable costs(AVC) and market price.
When a firm decides to close, its total earnings ( TR) fall to zero, and the resulting losses become equal to its total fixed costs. Therefore, until price is greater than average variable cost
P>AVC,
firm production should continue. In this case, the income received will cover all the variables and at least part of the fixed costs, i.e. losses will be less than at closing.
If price equals average variable cost
then from the point of view of minimizing losses to the firm indifferent, continue or stop its production. However, most likely the company will continue its activities in order not to lose its customers and keep the jobs of employees. At the same time, its losses will not be higher than at closing.
And finally, if prices are less than average variable costs the firm should cease operations. In this case, she will be able to avoid unnecessary losses.
Production termination condition
Let us prove the validity of these arguments.
By definition, n=TR-TS. If a firm maximizes its profit by producing the nth number of products, then this profit ( n) must be greater than or equal to the profit of the firm under the conditions of closing the enterprise ( on), because otherwise the entrepreneur will immediately close his enterprise.
In other words,
Thus, the firm will continue to operate only as long as the market price is greater than or equal to its average variable cost. Only under these conditions, the firm minimizes its losses in the short run, continuing to operate.
Intermediate conclusions for this section:Equality MS=MR, as well as the equality MP=0 show the optimal output volume (i.e., the volume that maximizes profits and minimizes losses for the firm).
The ratio between the price ( R) and average total cost ( ATS) shows the amount of profit or loss per unit of output while continuing production.
The ratio between the price ( R) and average variable costs ( AVC) determines whether or not to continue activities in the event of unprofitable production.
Competitor's short run supply curve
By definition, supply curve reflects the supply function and shows the amount of goods and services that producers are willing to supply to the market at given prices, in given time and this place.
To determine the short-run supply curve of a perfectly competitive firm,
Competitor's supply curve
Let's assume that the market price is Ro, and the average and marginal cost curves look like those in Fig. 4.8.
Because the Ro(closing points), then the firm's supply is zero. If the market price rises to a higher level, then the equilibrium output will be determined by the relation MC and MR. The very point of the supply curve ( Q;P) will lie on the marginal cost curve.
By consistently raising the market price and connecting the resulting points, we get a short-run supply curve. As can be seen from the presented Fig. 4.8, for a firm-perfect competitor, the short-run supply curve coincides with its marginal cost curve ( MS) above the minimum level of average variable costs ( AVC). At lower than min AVC level of market prices, the supply curve coincides with the price axis.
Example 2: Defining a sentence functionIt is known that a firm-perfect competitor has total (TC), total variable (TVC) costs represented by the following equations:
- TS=10+6 Q-2 Q 2 +(1/3) Q 3 , where TFC=10;
- TVC=6 Q-2 Q 2 +(1/3) Q 3 .
Determine the firm's supply function under perfect competition.
1. Find MS:
MS=(TC)`=(VC)`=6-4Q+Q 2 =2+(Q-2) 2 .
2. Equate MC to the market price (condition of market equilibrium under perfect competition MC=MR=P*) and get:
2+(Q-2) 2 = P or
Q=2(P-2) 1/2 , if R2.
However, we know from the preceding material that the supply quantity Q=0 for P
Q=S(P) at Pmin AVC.
3. Determine the volume at which the average variable costs are minimal:
- min AVC=(TVC)/ Q=6-2 Q+(1/3) Q 2 ;
- (AVC)`= dAVC/ dQ=0;
- -2+(2/3) Q=0;
- Q=3,
those. average variable costs reach their minimum at a given volume.
4. Determine what min AVC equals by substituting Q=3 into the min AVC equation.
- min AVC=6-2(3)+(1/3)(3) 2 =3.
5. Thus, the firm's supply function will be:
- Q=2+(P-2) 1/2 ,if P3;
- Q=0 if R<3.
Long-run market equilibrium under perfect competition
Long term
So far, we have considered the short-term period, which involves:
- the existence of a constant number of firms in the industry;
- enterprises have a certain amount of permanent resources.
In the long term:
- all resources are variable, which means the possibility for a firm operating in the market to change the size of production, introduce new technology, modify products;
- change in the number of enterprises in the industry (if the profit received by the firm is below normal and negative forecasts for the future prevail, the enterprise may close and leave the market, and vice versa, if the profit in the industry is high enough, an influx of new companies is possible).
Main assumptions of the analysis
To simplify the analysis, suppose that the industry consists of n typical enterprises with same cost structure, and that the change in the output of incumbent firms or the change in their number do not affect resource prices(we will remove this assumption later).
Let the market price P1 determined by the interaction of market demand ( D1) and market supply ( S1). The cost structure of a typical firm in the short run has the form of curves SATC1 and SMC1(Fig. 4.9).
Rice. 9. Long run equilibrium of a perfectly competitive industry
The mechanism of formation of long-term equilibrium
Under these conditions, the firm's optimal output in the short run is q1 units. The production of this volume provides the company positive economic profit, since the market price (P1) exceeds the firm's average short-term cost (SATC1).
Availability short-term positive profit leads to two interrelated processes:
- on the one hand, the company already operating in the industry seeks to expand your production and receive economies of scale in the long run (according to the LATC curve);
- on the other hand, external firms will begin to show interest in penetration into the industry(depending on the value of economic profit, the penetration process will proceed at different speeds).
The emergence of new firms in the industry and the expansion of the activities of old ones shifts the market supply curve to the right to the position S2(as shown in Fig. 9). The market price falls from P1 before R2, and the equilibrium volume of industry output will increase from Q1 before Q2. Under these conditions, the economic profit of a typical firm falls to zero ( P=SATC) and the process of attracting new companies to the industry is slowing down.
If for some reason (for example, the extreme attractiveness of initial profits and market prospects) a typical firm expands its production to the level q3, then the industry supply curve will shift even more to the right to the position S3, and the equilibrium price falls to the level P3, lower than min SATC. This will mean that firms will no longer be able to extract even normal profits and a gradual outflow of companies in more profitable areas of activity (as a rule, the least efficient ones leave).
The rest of the enterprises will try to reduce their costs by optimizing the size (i.e., by some reduction in the scale of production to q2) to a level at which SATC=LATC, and it is possible to obtain a normal profit.
Shifting the industry supply curve to the level Q2 cause the market price to rise to R2(equal to the minimum long-run average cost, P=min LAC). At a given price level, the typical firm earns no economic profit ( economic profit is zero, n=0), and is only able to extract normal profit. Consequently, the motivation for new firms to enter the industry disappears and a long-term equilibrium is established in the industry.
Consider what happens if the equilibrium in the industry is disturbed.
Let the market price ( R) has settled below the average long run cost of a typical firm, i.e. P. Under these conditions, the firm begins to incur losses. There is an outflow of firms from the industry, a shift in market supply to the left, and while maintaining market demand unchanged, the market price rises to the equilibrium level.
If the market price ( R) is set above the average long run costs of a typical firm, i.e. P>LATC, then the firm begins to earn a positive economic profit. New firms enter the industry, market supply shifts to the right, and with market demand unchanged, price falls to the equilibrium level.
Thus, the process of entry and exit of firms will continue until a long-term equilibrium is established. It should be noted that in practice, the regulatory forces of the market work better for expansion than for contraction. Economic profit and freedom to enter the market actively stimulate an increase in the volume of industry production. On the contrary, the process of squeezing firms out of an over-expanded and unprofitable industry takes time and is extremely painful for participating firms.
Basic conditions for long-run equilibrium
- Operating firms make the best use of the resources at their disposal. This means that each firm in the industry maximizes its profit in the short run by producing the optimal output at which MR=SMC, or since the market price is identical to marginal revenue, P=SMC.
- There are no incentives for other firms to enter the industry. The market forces of supply and demand are so strong that firms are unable to extract more than is necessary to keep them in the industry. those. economic profit is zero. This means that P=SATC.
- In the long run, firms in an industry cannot reduce total average costs and profit by scaling up production. This means that in order to earn a normal profit, a typical firm must produce a volume of output corresponding to a minimum of average long-term total costs, i.e. P=SATC=LATC.
In a long-term equilibrium, consumers pay the lowest economically possible price, i.e. the price required to cover all production costs.
Market supply in the long run
The individual firm's long-run supply curve coincides with the rising leg of the LMC above min LATC. However, the market (industry) supply curve in the long run (as opposed to the short run) cannot be obtained by horizontally summing the supply curves of individual firms, since the number of these firms varies. The shape of the market supply curve in the long run is determined by how resource prices change in the industry.
At the beginning of the section, we introduced the assumption that changes in industry output do not affect resource prices. In practice, there are three types of industries:
- with fixed costs
- with increasing costs
- with decreasing costs.
The market price will rise to P2. The optimal output of an individual firm will be equal to Q2. Under these conditions, all firms will be able to earn economic profits by inducing other firms to enter the industry. The industry short-run supply curve shifts to the right from S1 to S2. The entry of new firms into the industry and the expansion of industry output will not affect resource prices. The reason for this may lie in the abundance of resources, so that new firms will not be able to influence the prices of resources and increase the costs of existing firms. As a result, the typical firm's LATC curve will remain the same.
Rebalancing is achieved according to the following scheme: the entry of new firms into the industry causes the price to fall to P1; profits are gradually reduced to the level of normal profit. Thus, industry output increases (or decreases) following a change in market demand, but the supply price in the long run remains unchanged.
This means that a fixed cost industry is a horizontal line.
Industries with rising costsIf an increase in industry volume causes an increase in resource prices, then we are dealing with the second type of industries. The long-term equilibrium of such an industry is shown in Fig. 4.9 b.
A higher price allows firms to earn economic profits, which attracts new firms to the industry. The expansion of aggregate production necessitates an ever wider use of resources. As a result of competition between firms, resource prices increase, and as a result, the costs of all firms (both existing and new ones) in the industry increase. Graphically, this means an upward shift in the marginal and average cost curves of the typical firm from SMC1 to SMC2, from SATC1 to SATC2. The short run firm's supply curve also shifts to the right. The adjustment process will continue until economic profits dry up. On fig. 4.9 the new equilibrium point will be the price P2 at the intersection of the demand curves D2 and supply S2. At this price, the typical firm chooses the output at which
P2=MR2=SATC2=SMC2=LATC2.
The long run supply curve is obtained by connecting short run equilibrium points and has a positive slope.
Industries with diminishing costsAnalysis of the long-term equilibrium of industries with decreasing costs is carried out according to a similar scheme. Curves D1,S1 - the initial curves of market demand and supply in the short term. P1 is the initial equilibrium price. As before, each firm reaches equilibrium at the point q1, where the demand curve - AR-MR touches min SATC and min LATC. In the long run, market demand increases, i.e. the demand curve shifts to the right from D1 to D2. The market price rises to a level that allows firms to earn economic profits. New companies begin to flow into the industry, and the market supply curve shifts to the right. The expansion of production leads to lower prices for resources.
This is a rather rare situation in practice. An example is a young industry emerging in a relatively undeveloped area where the resource market is poorly organized, marketing is primitive, and the transportation system is poorly functioning. An increase in the number of firms can increase the overall efficiency of production, stimulate the development of transport and marketing systems, and reduce the overall costs of firms.
External savingsDue to the fact that an individual firm cannot control such processes, this kind of cost reduction is called foreign economy(English external economies). It is caused solely by the growth of the industry and by forces beyond the control of the individual firm. External economies should be distinguished from the already known internal economies of scale, achieved by increasing the scale of the firm and completely under its control.
Taking into account the factor of external savings, the function of the total costs of an individual firm can be written as follows:
TCi=f(qi,Q),
where qi- the volume of output of an individual firm;
Q is the output of the entire industry.
In industries with fixed costs, there are no external economies; the cost curves of individual firms do not depend on the output of the industry. In industries with increasing costs, there is negative external diseconomies, the cost curves of individual firms shift upwards with an increase in output. Finally, in industries with diminishing costs, there is a positive external economy that offsets the internal uneconomics due to diminishing returns to scale, so that the cost curves of individual firms shift downward as output increases.
Most economists agree that in the absence of technological progress, industries with increasing costs are most typical. Industries with diminishing costs are the least common. As industries with decreasing and fixed costs grow and mature, they are more likely to become industries with increasing costs. On the contrary, technological progress can neutralize the rise in resource prices and even cause them to fall, resulting in a downward long-run supply curve. An example of an industry in which costs are reduced as a result of scientific and technical progress is the production of telephone services.
Nesterov A.K. The model of perfect competition and the conditions for its occurrence // Encyclopedia of the Nesterovs
Consider the conditions for the emergence and formation of a perfect competition market model.
Perfect competition, by its definition, implies the initial existence of a product that is homogeneous in terms of properties and characteristics, its consumers and producers, the number of which tends to an infinite number, while a single consumer and producer has a small market share, insignificant influence and cannot determine essential conditions sale or consumption of goods by other market participants.
In the model of perfect competition, an important aspect is also the availability of objective, necessary and publicly available information about goods, prices, price dynamics, as well as information about sellers and buyers not only in a particular place, but also in the whole market and its immediate environment.
In the perfect competition model there is a lack of any power of producers of goods over the market, prices for these goods and buyers, however, the price is not set by the manufacturer, but through the mechanism of supply and demand. It should be noted that the model of perfect competition can only exist ideally, since its characteristic features do not occur in real life. economic systems ah pure. Despite the fact that the real embodiment of perfect competition markets in modern economic systems does not exist in their full accordance with the model of perfect competition, some markets are very close in their parameters to perfect competition. The closest to the conditions of perfect competition are the markets for agricultural products, the foreign exchange market and the stock exchange.
In general, it corresponds to a set of elements, which consist of many consumers of goods and many producers of goods, while the state acts as a subject that does not directly influence market mechanisms. Therefore, the size of the market is determined by the sum of the number of consumers and the number of producers, provided that these sets do not intersect.
It can be objectively concluded that, according to the definition of perfect competition, the conditions for the functioning of the market suggest that the number of consumers tend to infinity, as well as the number of producers. Consequently, the size of the market, determined by the sum of the number of consumers and the number of producers, also tends to infinity. However, in real conditions this is not possible due to the limited market. Thus, perfect competition on this basis is possible only under ideal conditions.
The definition of perfect competition indicates that the entire set of producers in the market produces homogeneous products, and all products of the produced assortment have the same quantitative characteristics. Wherein perfect competition model objectively indicates the fact that at least one product must be presented on the market. At the same time, the model of perfect competition assumes that for the set of sets of consumers and producers, a set of standardized consumed and produced goods with certain price characteristics is given. However, the equivalence of goods in practice is not really possible, since completely identical goods do not exist, and many characteristics of goods cannot be expressed by quantitative characteristics in the form of numerical data, especially given the existence of non-price indicators. Thus, this feature is also an ideal condition for the existence of perfect competition.
According to the definition of perfect competition, a single consumer and producer cannot influence the conditions for the sale or consumption of goods that are essential for other participants in this market. In this regard, the perfect competition model takes into account that in conditions where there is equal awareness of all market participants, each of them will strive to maximize their own benefit from the sale or consumption of goods. With this in mind, a market defined by the sum of the number of consumers and the number of producers, whose number tends to infinity, in the short run has no upper limit to profit under perfect competition. Therefore, the producer in the short run will seek to maximize his profit by changing the volume of production of goods, while operating with the variable factors available to him, such as labor and materials. At the same time, under conditions of perfect competition, marginal revenue is equal to the price of a unit of output, so the producer will increase the volume of goods produced until marginal cost becomes equal to marginal revenue, i.e. price. In real conditions, the benefit from the sale or consumption of goods cannot tend to infinity, therefore, this feature also characterizes the model of perfect competition as a certain set of ideal conditions. Accordingly, a decrease in the rate of profit in the long term is natural, therefore, such a model of competitive relations is doomed to failure and some external intervention in the market situation is required.
Conditions for perfect competition
Analyzing the model of perfect competition, we can make an objective conclusion that the conditions for the emergence of perfect competition are reduced to 4 main factors.
Conditions for perfect competition
First, it is required Free access all producers to factors of production at equal prices. In this case, full coverage of all resources, both tangible and intangible, is required, including technology and information. This condition for the emergence of perfect competition means the absence of geographical, organizational, transport and economic barriers to entry and exit from the market in relation to any manufacturer of goods sold on this market. It also guarantees the absence of collusion between producers regarding pricing policy and production volumes of goods and ensures the rational behavior of all participants in the market of perfect competition.
Secondly, a positive effect of scale of production is achieved only in the production of such a quantity of goods that does not exceed the demand on the market from the consumers of these goods. This condition for the emergence of perfect competition predetermines the economic feasibility and rationality of functioning within the framework of this market of many small producers, the number of which, according to the model of perfect competition, tends to infinity.
Thirdly, the prices of goods should not depend on the volume of their production and the pricing policy of an individual manufacturer, as well as the actions of individual consumers of these goods. This condition de jure assumes that producers operating in the market accept the price as a fact established from outside, de facto, it means that the mechanism of supply and demand operates only on the basis of market laws, due to which the price is determined by the market, which corresponds to the price market equilibrium. In addition, this means that initially the costs of all consumers for the production of homogeneous goods practically do not differ due to the similarity of the production technology used, the prices of production factors and the absence of a difference in transport costs.
Fourth, there must be complete information transparency of data on the characteristics of goods and prices for them for consumers, as well as information on production technology and prices for production factors for producers. This condition for the emergence of perfect competition implies the provision of symmetrically developing sets of buyers and consumers, the number of which should tend to infinity. Related to this condition is also the possibility for any market participant at any time to conclude a deal with any other market participant at no additional cost compared to any other producer or consumer.
When these conditions are met, a market of perfect competition arises, in which buyers and producers perceive market prices as set from outside and do not influence them, having no direct or indirect opportunity to do so. The first and second conditions ensure the presence of competition, both among buyers and among manufacturers. The third condition determines the very possibility of a single price for a homogeneous product within a given market. The fourth condition is necessary for the optimal interaction of market participants when buying and selling homogeneous goods.
You can also select 3 additional.
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Additional conditions for the emergence of perfect competition |
Characteristic |
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Consumer capital |
In particular, the condition must be observed that the consumer's capital, with which he purchases goods, consists of the sum of his initial savings and the results from participation in the distribution of income in the manufacturing sector. The latter can be expressed in the form of receiving wages as payment for wage labor or dividends on share capital. |
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Lack of personal preferences |
In addition, the condition that producers and consumers have no preferences of a personal, spatial and temporal nature must be met. This makes it possible to ensure the existence of a set of large sets of producers and consumers, the number of which tends to infinity. |
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Lack of intermediaries |
Also, as an additional condition for the emergence of perfect competition is the initial absence of the possibility of the appearance on the market of exchange offices, dealers, distributors, investment funds and any other intermediaries between producers and consumers. This follows from the market model of perfect competition, which includes only the set of sets of producers and consumers. |
Theoretical nature of the model of perfect competition
From point of view economic theory conditions of perfect competition are characterized as the most beneficial for society in the medium term, since unprofitable markets in the long run cease to exist and are replaced by new ones that benefit the participants in these markets, which indicates the successful development of society as a whole. However, not all so simple.
The conditions necessary for the emergence of a market of perfect competition are largely idealized, which is confirmed by the model of the market of perfect competition.
On the one hand, in practice it is impossible to fulfill all these conditions in the required form, on the other hand, it seems futile to maintain such conditions in the long term. It is largely for this reason that the model of perfect competition is abstract. The market model of perfect competition, which assumes complete freedom of competition and the market mechanism, describes the situation of the functioning of an ideal market and has more theoretical than practical significance. At the same time, consideration of the conditions for the emergence of perfect competition is a very significant area of construction mathematical models, as it allows you to abstract from non-essential aspects when studying the principles of economic interaction and the behavior of producers and consumers.
Thus, the interaction of producers and consumers in conditions of perfect competition should be considered solely from the point of view of studying the theoretical basis for the functioning of the market mechanism.
The value of the perfect competition model lies in the ability to analyze:
- firstly, from the position of each market participant in determining the strategy of behavior in the sale or consumption of goods,
- secondly, from the standpoint of evaluation separate species goods on the market
- thirdly, from the standpoint of the general state of competition in the market as a whole.
In the first case, the state of a particular subject and its interactions with other market participants are considered without taking into account the goods produced or consumed by it. The second approach makes it possible to evaluate the aggregate characteristics of a product without taking into account which specific market participant produced or consumed it. The most detailed is the third case, which is based on the search for the optimal state of the market as a whole, which would suit both producers and consumers.
Literature
- Berezhnaya E.V., Berezhnoy V.I. Mathematical methods for modeling economic systems. - M.: Finance and statistics, 2008.
- Volgina O.A., Golodnaya N.Yu., Odiyako N.N., Shuman G.I. Math modeling economic processes and systems. – M.: KnoRus, 2012.
- Panyukov A.V. Mathematical modeling of economic processes. – M.: Librokom, 2010.
1. Task (( 1 )) TK 1
A perfectly competitive firm means that a firm...
R which does not affect the formation of the market price
other market participants
R can leave the perfectly competitive market at any time
2. Task (( 1 ))T3 1
When analyzing market structures, they usually distinguish _______________________________________ of type (model)
3. Task (( 1 )) TK 1
Distribute the types of market structures as the number of firms operating in them increases:
1: monopoly
2: oligopoly
3: monopolistic competition
4: perfect competition
4. Task (( 1 )) TK 1
Freedom to enter and exit the market is characteristic only for...
R of perfect competition
5. Task (( 1 )) TK 1
The perfectly competitive market model is characterized by:
R set of small firms
R very easy conditions for entering the industry
R lack of control over the price
Average level
6. Task (( 1 )) TK 1
The supply curve of a competitive firm in the short run is:
R is the portion of the marginal cost curve above the average variable cost curve
7. Task (( 1 )) TK 1
A form of exchange without affecting the price of one's commodity, but with the possibility of increasing profits by reducing costs and transferring capital to highly profitable industries is called ...
R perfect competition
8. Task (( 1 )) TK 1
If in the market everyone can manage their income and is responsible for the results of their activities, and the "invisible hand" sets the price for buyers and sellers, then this market is ...
R competitive
9. Task (( 1 )) TK 1
The market that best meets the conditions of perfect competition is...
R stocks and bonds
10. Task (( 1 )) TK 1
Correspondence between types of market structures and their characteristics:
11. Task ((43 ))Т3 43
A market constraint on a competitive firm is that:
R market dictates a certain price level
12. Task (( 1 )) TK 1
Economic profit:
R cannot take place in a competitive market in the long run
13. Task (( 1 )) TK 1
In the short run, a profit maximizing firm will stop production if it turns out that...
R price is less than the minimum average cost
14. Task (( 1 )) TK 1
Marginal product in monetary terms (MRP), marginal product in
in physical terms (MP), unit price of output (P) in
conditions of perfect competition are subject to the following relationship...
R MRP = MPxP
15. Task (( 1 )) TK 1
The conditions for perfect competition are:
16. Task (( 1 ))TK 1
An enterprise minimizes losses in a perfectly competitive environment if, at the optimal level of production:
R price is above average variable cost but below average total cost
17. Task (( 1 )) TK 1
The characteristics of a perfectly competitive firm are:
R A firm is in equilibrium when its marginal revenue equals its marginal cost
R curves for average and marginal cost are U-shaped
R is the demand curve for the firm's product - a horizontal line
Monopoly
A basic level of
1. Task (( 1 )) TK 1
Price discrimination is:
R Selling the same product to different buyers at different prices
2. Task (( 1 )) TK 1
If in the market one seller dictates the price, and access of other sellers is impossible, then this ...
R monopoly
3. Task (( 1 )) TK 1
Price discrimination refers to the market...
R monopoly
4. Task (( 1 )) TK 1
A monopoly is a market structure in which:
R there are blocking entry conditions
R There is one seller and several buyers in the market
5. Task (( 1 )) TK 1
A sign of only a monopoly market is:
R one seller
6. Task (( 1 ))TK 1
The monopoly that exists in an industry that exploits unique natural resources is called ...
R natural monopoly
Average level
7. Task (( 1 ))Т31
negative consequences market monopolization are:
R manufacturer (monopolist) loses interest in innovation
R the prerequisites are created for stagnation in the economy and the flourishing of the bureaucracy
R production efficiency drops
8. Task (( 1 )) TK 1
The main goal of antimonopoly policy is:
R competition support
9. Task (( 1 )) TK 1
A monopoly offers a product to the market.
R only unique
10. Task (( 1 )) TK 1
According to the Law of the Russian Federation "On Competition and Restriction monopolistic activity in product markets, a firm is dominant if its market share is...
R is greater than 35%
11. Task (( 1 )) TK 1
As a barrier to entry into the monopolistic industry of new producers can serve as:
R patents and licenses
R lower costs large-scale production
R Legislation exclusive rights
12. Task (( 1 ))TK 1
In the long run, a monopolist, in contrast to a perfect competitor:
R is protected from competition from other firms
13. Task (( 1 )) TK 1
14. Task (( 1 )) TK 1
In order to maximize profits, the monopolist must choose the output at which...
R marginal revenue equals marginal cost
15. Task (( 1 )) TK 1
Unlike a competitive firm, a monopoly seeks to...
R produce less and set the price higher
16. Task ((8)) TK 8 "
A market structure characterized by the clear dominance of one
buyer...
Correct answer: mon*pson#$#
17. Task (( 32 )) TK 32
A natural monopoly occurs when...
R enterprise extracts or owns scarce resources
18. Task (( 1 )) TK 1
A monopoly is likely to be:
R gas station in countryside
19. Task (( 1 )) TK 1
The function of the total costs of the monopolist TS = 100 + 3Q, where Q is the quantity of products produced per month. The demand function for the monopolist's products P = 200 - Q, where P is the price of the monopolist's products. If a monopolist produces 20 units. products per month, then his total income will be ...
20. Task (( 1 )) TK 1
Under monopoly, the following statement is true:
R profit is maximum if marginal cost equals marginal revenue
21. Task (( 1 )) TK 1
A profit maximizing monopolist will reduce the price of its product if:
R marginal revenue is greater than marginal cost
22. Task ((46)) TK 46
An increase in the average cost of a monopolist leads to:
R an increase in price only if marginal cost also increases
23. Task ((72)) TK 72
A firm that has monopoly power in the product market but does not have a monopsony in the factor markets will hire:
R pay higher wages compared to competitive firms
24. Task (( 1 ))TK 1
A firm has monopoly power if it...
R sets the price based on the demand curve
Monopolistic competition and oligopoly
A basic level of
1. Task (( 1 )) TK 1
The cartel is...
R is a form of monopoly in which its participants, while maintaining commercial and industrial independence, agree among themselves on prices, market division, and the exchange of patents.
2. Task (( 1 )) TK 1
In an oligopoly, a business...
R agrees pricing policy with partners
3. Task (( 1 ))TK 1
Oligopoly is a market structure where...
R a small number of competing firms producing homogeneous or differentiated products
4. Task (( 1 )) TK 1
Imperfect competition models include:
R oligopoly
R monopsony
5. Task (( 1 ))Т3 1
A market structure in which a small number of competing firms produce a differentiated or standardized product is called...
Correct answers: *lig*gender#$#
6. Task (( 1 )) TK 1
Monopolistic competition is not characterized by:
R interdependence of sellers in setting prices
7. Task (( 1 )) TK 1
An oligopoly is a situation where an industry has...
R from 2 to 10 firms
Average level
8. Task (( 1 )) TK I
To market structures in which firms do not receive
economic profit in the long run include:
R perfect competition
R monopolistic competition
9. Task (( 1 )) TK 1
Perfect and monopolistic competition markets have common feature:
R There are many buyers and sellers in the market
10. Task (( 1 )) TK 1
If the price in the market is focused on the leader selling the bulk of the goods, and market access is limited by the scale of capital, then this ...
R oligopoly
11. Task (( 1 )) TK 1
The founder of the theory of oligopoly is...
R A. Cournot
12. Task (( 1 )) TK 1
An oligopodietic market is similar to a monopolistic competition market in that:
R firms have market power
13. Task (( 1 )) TK 1
In conditions of monopolistic competition, the company produces:
R differentiated product
14. Task (( 1 )) TK 1
Non-price competition includes:
R product differentiation
15. Task((1))T31
The main principles of pricing in an oligopolistic market include:
R conspiracy in price
R price leadership
R price cap
16. Task (( 1 )) TK 1
The form of a monopoly in which its participants, while maintaining commercial and industrial independence, agree among themselves on prices, market division, and the exchange of patents is called:
Correct answers: kart*l#$#
17. Task (( 1 ))Т3 1
Association of entrepreneurs, which undertakes the implementation of all commercial activities while maintaining the production and legal independence of the enterprises included in it, it is called:
Correct answers: S*ndika*
18. Task ((33))ТЗЗЗ
A tacit agreement on prices, the division of markets and other ways to limit competition is ...
R conspiracy
19. Task (( 1 ))Т3 1
A characteristic manifestation of the non-cooperative behavior of an oligopoly is ...
R price war
High level
20. Task (( 1 )) TK 1
A cartel member "could increase his profits:
R by selling your product at a lower price than other cartel members
R conducting active non-price competition
21. Task (( 1 )) TK 1
If a firm operating in the market does not receive economic profit in the long run, then such a firm operates in the industry:
R of perfect competition
R monopolistic competition
22. Task (( 1 ))T31
Monopolistic competition occurs in markets for goods whose elasticity of demand is...
R is usually high
23. Task (( 1 )) TK 1
Demand for the products of firms under monopolistic competition ...
R is more elastic than that of a pure monopolist, but less elastic than that of a perfectly competitive firm.
Solution:
A perfectly competitive market has the following character traits:
- homogeneity of products,
- the number of sellers is unlimited,
- free entry and exit in the market, i.e. absolute mobility of all resources.
Towards perfect competition it is forbidden carry...
A perfectly competitive market is characterized by...
A wider choice of products for the consumer is provided by manufacturers as part of …
Solution:
The most diverse needs of people are satisfied with the help of differentiated products. Such products are sold in the markets of monopolistic competition and oligopoly.
In a perfectly competitive market, the individual producer...
Solution:
In a perfectly competitive market, there is an unlimited number of participants, therefore, the volume of production of each firm is not large and the manufacturer is able to sell all his goods at a single price. The price in the market of perfect competition is unchanged, each unit of the product is sold at the same price, because no one is able to change the price (the volume of production of each firm is small in relation to the entire market). It changes only under the influence of market forces.
In a perfectly competitive market, a firm is in short-run equilibrium if the following conditions are met:
Solution:
The equilibrium of a competitive firm in the short run is achieved under the condition , that is, when marginal revenue is equal to marginal cost, and the latter, in turn, exceed the average total cost. Therefore, a firm in a perfectly competitive market is in short-run equilibrium if:
- marginal revenue is equal to marginal cost;
Marginal cost is greater than average total cost.
The equilibrium of a competitive firm in the long run is achieved under the condition . That is, when its long-term, short-term marginal and average indicators coincide.
At the closing point of a competitive firm, the following conditions are satisfied:
Solution:
The firm will go out of business if the price is this low and will only recover average variable costs. Thus, the conditions for the equilibrium of the firm will be the equality of marginal revenue, marginal cost and the minimum value of average variable costs. If the price is below the average gross cost, but above the average variable, then in the short term the company does not close, but tries to minimize losses.
Theme: Monopoly
Market power is...
Solution:
One measure of market power is the Lerner index, which is inversely proportional to the elasticity of demand for a good, and the Herfindahl-Hirschman index.
Examples of price discrimination include...
Solution:
Price discrimination is the sale of the same product to different consumers at different prices, and the difference in prices is not due to differences in production costs. Of the proposed options, examples of price discrimination would be:
- an action when, when buying two packs of toothpastes, they give a brush as a gift, since those who do not buy 2 toothpastes at once are in a discriminatory position, they do not have the opportunity to get a brush for free;
- selling movie tickets for a morning session is cheaper than for an evening one (separation of markets into expensive and cheap ones); prices are different, the film is the same, significant differences in the costs of showing the film in different time no.
The characteristics of a monopoly are...
The conditions for maximizing profits in a monopoly include ...
Solution:
The monopolist is in equilibrium at . A monopoly firm maximizes profit if:
- equal marginal revenue and marginal cost;
-price is above marginal revenue
