MARKET STRUCTURE
Market is the way in which an industry is organized.
4 types of market :
+ Perfect competition. PeCom
+ Monopolistic Competition MoCom
+ Monopoly Mono
+ Oligopoly Oly
PeCom Keywords.
- ideal market structure
- large number of firms
- homogenous good
- price taker
E.g : agricultural - producer sayuq cabai tomato dan bagai2.
Karakter PeCom.
- many sellers. many buyers.
- buyers sellers ---price takers.
- sell homogenous prod.
- easy entry. easy exit.
- perfect info available to buyers & sellers.
*demand curve is perfecly elastic. ---because firms are price takers.
SHORT RUN EQUILIBRIUM OF FIRMS.
3 possibilities of profits :
a) Supernormal profit
- AR > AC at equilibrium. or TR > TC.
b) Normal profit
- AR = AC at equilibrium. or TR = TC.
c) Subnormal profit
- AR < AC at equilibrium. or TR < TC. - If AR >= AVC -->cont. production.
- If AR < AVC --> stop production.
THE SHUT DOWN POINT
+ If price below AVC --> stop producing and exit from the market.
+ Point where AVC is = to AR.
+ The losses incurred by continuing to operate are = fixed cost.
* AVC = AR or P*
LONG-RUN COMPETITIVE EQUILIBRIUM
+ only earn normal profit.
?? - free entry and exit.
MONOPOLY
Mono Keyword.
- single firm makes up the entire market.
- one for all. all for one.
Karakter Mono.
- one seller in the market. power to determine price. a.k.a price maker.
- produce one good , no subs.
- no free entry.
- min. advertising.
MONOPOLY IN THE LONG RUN
+ supernormal profit --> no entry & no competition ; goods are unique and no close subs.
+ monopolist has great flexibility -- alter plant size to lower its cost.
MONOPOLISTIC COMPETITION
MoCom Keyword.
+ many firm sell different product.
E.g : sell shoes, watches, baju, perabot,spek mata...etc.
Karakter MoCom.
- many seller ; competitive market.
- diff product but has close subs.
- easy entry of new firms. -- no long run profit.
- need advertising
- less power to control price.
MONOPOLISTIC COMPETITIVE FIRM IN THE LONG RUN.
- get normal profit.
?? - free entry free exit.
OLIGOPOLY
Oly Keyword.
+ few large dominant
+ control industry
E.g : Petronas, Proton, Perodua. -- industry of petroleum, airplane maker, steel, automobile...etc.
Karakter Oly
- few large firm control the industry.
- barriers to entry --- due to govt regulations, patent right or franchise.
- mutual interdependence of firms - decide on others' reaction.
- price rigidity/stickiness/stability.
- identical / differentiated products.
- non-price competition.
* advertisements, packaging, product diff &
after sale service rather than lowering the cost.
SWEEZY'S model.
- explain the kinked demand curve & price rigidity in oli.
assumptions :
- if firm were to increase the price, other firms will not follow. ( demand curve elastic )
- if firm were to reduce price, other firms will follow. --> avoid losing market share. ( demand curve is inelastic)
VISUALS TO REFER.
- min. advertising.
MONOPOLY IN THE LONG RUN
+ supernormal profit --> no entry & no competition ; goods are unique and no close subs.
+ monopolist has great flexibility -- alter plant size to lower its cost.
MONOPOLISTIC COMPETITION
MoCom Keyword.
+ many firm sell different product.
E.g : sell shoes, watches, baju, perabot,spek mata...etc.
Karakter MoCom.
- many seller ; competitive market.
- diff product but has close subs.
- easy entry of new firms. -- no long run profit.
- need advertising
- less power to control price.
MONOPOLISTIC COMPETITIVE FIRM IN THE LONG RUN.
- get normal profit.
?? - free entry free exit.
OLIGOPOLY
Oly Keyword.
+ few large dominant
+ control industry
E.g : Petronas, Proton, Perodua. -- industry of petroleum, airplane maker, steel, automobile...etc.
Karakter Oly
- few large firm control the industry.
- barriers to entry --- due to govt regulations, patent right or franchise.
- mutual interdependence of firms - decide on others' reaction.
- price rigidity/stickiness/stability.
- identical / differentiated products.
- non-price competition.
* advertisements, packaging, product diff &
after sale service rather than lowering the cost.
SWEEZY'S model.
- explain the kinked demand curve & price rigidity in oli.
assumptions :
- if firm were to increase the price, other firms will not follow. ( demand curve elastic )
- if firm were to reduce price, other firms will follow. --> avoid losing market share. ( demand curve is inelastic)
VISUALS TO REFER.
