What is the property of a perfectly competitive market? What is imperfect competition. Markets close to pure competition

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 specific gravity so small that the decisions of an individual firm (an 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 dominant 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 current 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 output at which profit is maximum in short term.

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 the total profit reaches its maximum value at such a volume of output at which marginal cost equal to 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 revenues of a firm that is a perfect competitor (PAR = MR), then the equality of marginal costs and marginal revenues is transformed into the equality of marginal costs and prices:

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 presented figure, the volume of 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 average variable cost (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, at a given time and 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 function

It 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 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 R1 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 R1 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.

Industries with fixed 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 costs

If 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 costs

Analysis 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 would be a young industry emerging in a relatively undeveloped area where the resource market is poorly organized, marketing is at a primitive level, and transport system functions poorly. 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 savings

Due 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.

Introduction

Market pricing according to the laws of supply and demand, the formation of equilibrium market prices on this basis underlie the self-regulation of a market economy, its ability to solve economic problems more efficiently than other systems.

But there are no countries where the state would not interfere in the market in any way. The problem of studying state intervention will be relevant as long as the market itself exists.

The purpose of this term paper is to determine the role of the state in the market, the effectiveness of the state pricing policy.

To achieve the goal, the following tasks were set:

1. consider the market of perfect competition and the forms of price control of the state, their consequences;

2. consider the monopolistic market and determine the place of the state in this market;

3. compare the consequences state regulation both markets and determine whether there are patterns in government policy regarding market structure.

Features of state regulation of prices in the market of perfect competition

Market structure

The market is an objective phenomenon of the economy, known to any person, and yet the market is still difficult to give an exhaustive definition. The market is one of the most common categories in economic theory and business practice. The market as an economic category is a set of specific economic relations and ties between buyers and sellers, as well as resellers regarding the movement of goods and money, reflecting the economic interests of subjects market relations and ensuring the exchange of products of labor. The market is the mechanism by which buyers and sellers interact to set the prices and quantities of goods and services. The market today is considered as a type of economic relations between the subjects of economic relations.

The structure of the market is the internal structure, location, order of individual elements of the market, their share in the total volume of the market; These are the conditions for market competition.

A necessary and most important element of the market is competition, which has a different nature and forms on various markets and in various market situations. Competition - economic rivalry for the right to obtain a larger share of a certain type of limited resources. The virtue of competition is that it makes the distribution of scarce resources dependent on the economic parameters of the competitors.

According to the conditions of the course of market competition, there are perfect and imperfect competition.

There are three main types of imperfect competition: monopolistic competition, oligopoly, monopoly.

Features of a perfectly competitive market

In economic theory, perfect competition is a form of market organization in which all types of rivalry are excluded both between sellers and between buyers. Thus, the theoretical concept of perfect competition is in fact a negation of the usual understanding of competition in business practice and everyday life as a sharp rivalry between economic agents. Perfect Competition perfect in the sense that with such an organization of the market, each enterprise will be able to sell as many products as it wishes at a given market price, and neither an individual seller nor an individual buyer can influence the level of the market price.

We say that perfect competition prevails if the following conditions are satisfied in the market:

1. The market is made up of many competing sellers, each selling a standardized product. many buyers.

2. Each firm has a very small share of total output sold on the market, less than 1% of total sales for any given time period.

3. Neither firm sees competitors as a threat to its market share of sales. Firms are thus not interested in the production decisions of their competitors. .

4. Price information , technology and probable profit is freely available, and there is an opportunity to quickly respond to changing market conditions through the movement of applied resources.

5. Market entry and exit from it for sellers of standardized goods is free . This means that there are no restrictions preventing the firm from selling the product on the market, and there are no difficulties with the termination of operations in the market.

A perfectly competitive market is a market where the conditions for perfect competition are satisfied. In a perfectly competitive market, buyers of standard products or services do not care which firm to choose. For example, the market for eggs is very likely to be competitive. Many vendors sell eggs every day. None of the farmers account for more than 1% of the daily market sales. The first two of the above conditions for a perfectly competitive market ensure that no seller can influence the price of a product. The individual seller has a very small share of the total output, he is not able to change the supply in the market so that the price changes. Accordingly, sellers in a perfectly competitive market accept prices as set from outside, that is, they are "price-takers".

This means that the price at which each firm sells its output is determined by forces beyond the control of the firm. It is about the conditions of supply and demand in the market as a whole. Demand conditions under perfect competition both for an individual firm and for the entire market are shown in Figure 1.

Let us assume that the equilibrium price P E equals $0.4 per pound of broiler, then the equilibrium quantity Q E is 2 billion pounds annually. Part (b) of the figure shows what the market looks like from the point of view of the individual producer. Range options From the point of view of the firm, output has a dimension expressed not in billions of pounds, but in thousands. This range is so small that whether a firm produces 10,000 pounds, 20,000 pounds, or 40,000 pounds of chicken per year has little to no effect on aggregate demand. The change per £10,000 is so small that it can't be seen on the much larger market demand and supply charts. With regard to a single firm, it is obvious that the demand curve for its products is perfectly elastic (horizontal) at the market price, although, from the point of view of the market as a whole, the demand curve has a quite usual negative slope.

2. State regulation .................................................................. .... 3

a.Reasons for government regulation...................... 3

b.Tasks of state regulation.............................. 4

c.Types of state regulation of markets ....... 4

d.State regulation in Russia.............................. 5

3. A little bit.............................................. ............................... 6

4. Bibliography................................................. ................................. 7

Let's start from the beginning

Studying various types of markets, we divide them all, first, into two types: markets of perfect and imperfect competition, depending on the number of economic agents in the market, product differentiation, the share of an individual seller in the market, the presence or absence of entry and exit barriers in the market, accessibility information, the degree of bargaining power of sellers. But markets of perfect competition in life are quite rare (for example, the market for agricultural products or the securities market), but with imperfect competition (by which we mean monopolistic competition, oligopoly and monopoly) we meet much more often. And since sellers in such markets have market power, the prices of their goods are higher than in a perfectly competitive market. This means that state intervention and price regulation often serves the interests of buyers, except in cases where the state, for example, by supporting temporarily idle giant factories, artificially inflates prices for their products.

Since monopolistic competition is pretty close to perfect, we will turn our attention to the state regulation of oligopolies and monopolies. We will try to understand the causes and objectives of regulating their activities, consider the situation that has developed in Russia in the last decade.

Reasons for government regulation

Despite the technical efficiency of the concentration of production in the hands of one enterprise, a monopolist or oligopolist often abuses his position. This manifests itself in overstating costs or inflating profits. And unreasonably high prices negate the social effect of economies of scale.

There are two main options economic behavior a seller of goods in a non-competitive market, allowing to make a profit that is significantly greater than in the case of his actions in a competitive market.

1. The desire to extract economic profit and setting prices above marginal costs, in the case of establishing a single price for a product for different groups of consumers, leads to a reduction in production relative to the competitive level and the emergence of DWL ("dead weight losses"). In a competitive market, the price and production volumes are set at the level when the quantity demanded is equal to the quantity supplied, and we get the equilibrium price Pc at the production volume Qc. If the market is controlled by a monopoly, the latter will determine the volume of production based on the equality of the curves of marginal revenue and marginal cost (MR=MC). Then we get the level of production equal to Q* (Q* PC)

2. In an effort to minimize irretrievable losses and capture most of the consumer surplus, monopolists and oligopolists resort to price discrimination - assigning different prices for the same product to different buyers depending on demand. To do this, the seller must have the necessary mass of marketable products D(c) that can satisfy the demand of a group of buyers with low solvency. And also this product must be unsuitable for long-term storage and accumulation, because otherwise a buyer appears who purchases the product at a low price with the aim of subsequent resale at a high one.

The most important condition is the possibility of separating consumer groups according to their ability to pay by charging different fees for the same product. The process of price discrimination is one of the forms of redistribution of funds, therefore price discrimination is prohibited by the antitrust laws of most developed countries.

Since the prices of monopoly products are high, it happens that enterprises sell their goods and services on credit. And this always translates into the desire of consumers to delay payments for consumed products. Thus, the consequences of monopoly behavior are not only in reducing production volumes, but also in creating the preconditions for the development of a non-payment crisis. The spread of non-payments is the result of price discrimination of economic structures that have influence on the market and are not constrained in their activities by the regulatory influence of the state.

Also, the need to regulate prices in natural monopolies and, to a lesser extent, in oligopolies, is also due to the fact that the mechanism of influencing the economy through a system of regulated prices is an effective addition to fiscal macroeconomic policy.

Tasks of state regulation

We looked at why the state needs to regulate the activities of oligopolies and monopolies. But what can the state achieve by "managing" firms operating in an imperfectly competitive market? By regulating the activities of oligopolies and monopolies, the state can create a financial situation that is attractive to creditors and investors, offer buyers more or less affordable prices for monopoly products; it is possible to develop a new tariff grid based on the principles of fair and efficient allocation of costs to tariffs for various types of consumers. Also, the state can stimulate monopoly enterprises to reduce costs and excessive employment, improve the quality of service, increase the efficiency of investments, etc.; can use the possibilities of price regulation mechanisms when pursuing a stabilizing macroeconomic policy, can manage the development of the economy in the regions. For example, if we formulate regional problems that can be solved with the help of tariffs for electricity and heat, then they are as follows:

Alignment or differentiation of tariffs by subjects Russian Federation in order to ensure their uniform development;

Management of modes of electricity and heat consumption;

Stabilization of the economic situation of energy facilities and their associations with an unplanned reduction in energy demand in advance;

Stimulation of an increase or decrease in demand for energy by individual consumers or groups of consumers and, accordingly, the regulation of their economic activity.

As we can see, the range of problems solved with the help of state regulation of imperfect competition markets is very wide, which means that this type of state activity is important for the normal functioning of our society.

Types of state regulation of markets

The state can regulate markets in two main ways. The first is the imposition of taxes on production. The second is the use of fixed prices (more often price ceilings). But both of these methods are not always efficient from an economic point of view, and sometimes generally lead to the opposite of the desired result. Let's take a closer look at both of these options.

Let's start with taxes. This method is not economically viable, since most of the time the tax burden falls on the buyers. For example, consider the introduction of a commodity tax, which is officially paid by the seller.

Initially, equilibrium was at the point where price was P* and quantity was Q*. After imposing a tax of T for each unit of a good, the supply curve shifted up by T units.

Consequently, the new equilibrium began to be characterized by three quantities: Q’, P’, P”. And the total amount of tax received by the state budget will be equal to the area of the rectangle P’ABP.” It is worth noting that part of the "tax burden" rests with the buyer. It turns out that the introduction of a commodity tax causes a reduction in the equilibrium size of the market, and also leads to an increase in the price actually paid by buyers and a decrease in the price actually received by sellers.

In markets of imperfect competition, the state, when setting a price ceiling, usually sets a price below the equilibrium price. In this case, we get a situation of shortage of goods, the difference between the available and required amount of goods the state can cover by paying extra to producers from tax revenues (which is what happens in the Moscow Metro).

Another situation is also possible. Let the government set the price ceiling lower equilibrium price, and producers have an illegal opportunity to sell their goods at a higher price on the black market (in case of exposure, sanctions apply only to sellers).

Then the supply line takes position S'. The difference P”-P’ is compensation for the risk of exposure. The vertical difference S'-S determines the severity of sanctions for violation of price discipline. As a result, all goods go to the black market, and its price turns out to be even higher than the equilibrium price (before state intervention). As we can see, these two methods of regulating markets of imperfect competition are not ideal, but nevertheless, some results can be achieved with their help.

7.1. Features of a perfectly competitive market.
7.2. The performance of a competitive firm in the short run.
7.3. Perfect competition market in the long run.

Test questions.

In topic 7, note the connection with the theory of the following actual problems Russian economy:

Why is there no free pricing in crime-controlled markets?
Where can you find perfect competition in Russia?
Bankruptcy of enterprises in Russia.
What do they do Russian enterprises to reach the break-even zone?
Why temporarily stop production at Russian factories?
Does widespread small business lead to price changes?
Why even in highly competitive markets government intervention may be needed.

Features of a perfectly competitive market

Supply and demand - two factors that give life to the market as a place of their meeting, form the level of prices for goods and services in the economy. Determining the cost and income curves, they create the external environment for the existence of the firm. The behavior of the firm itself, its choice of production volumes, and hence the size of the demand for resources and the size of the supply of its own goods, depend on the type of market in which it operates.

competition

The most powerful factor dictating the general conditions for the functioning of a particular market is the degree of development of competitive relations on it.

Etymologically word competition goes back to latin concurrentia, meaning clash, competition. Market competition is the struggle for the limited demand of the consumer, conducted between firms in the parts (segments) of the market accessible to them. As already noted (see 2.2.2), competition performs in a market economy essential function a counterbalance and at the same time an addition to the individualism of market entities. It forces them to take into account the interests of the consumer, and hence the interests of society as a whole.

Indeed, in the course of competition, the market selects from a variety of goods only those that consumers need. They are the ones that sell. Others remain unclaimed, and their production stops. In other words, outside a competitive environment, an individual satisfies his own interests, regardless of others. In the conditions of competition, the only way to realize one's own interest is to take into account the interests of other persons. Competition is the specific mechanism by which the market economy addresses fundamental questions what? as? for whom to produce 2

The development of competitive relations is closely related to splitting economic power. When it is absent, the consumer is deprived of a choice and is forced either to fully agree to the conditions dictated by the producer, or to be completely left without the good he needs. On the contrary, when economic power is split and the consumer deals with many suppliers of similar goods, he can choose the one that best suits his needs and financial possibilities.

Competition and types of markets

According to the degree of development of competition, economic theory distinguishes the following main types of market:

1. Market of perfect competition,
2. Market of imperfect competition, in turn subdivided into:
- a) monopolistic competition
- b) oligopoly;
- c) a monopoly.

In a market of perfect competition, the splitting of economic power is maximal and the mechanisms of competition operate in full force. Many manufacturers operate here, deprived of any leverage to impose their will on consumers.

Under imperfect competition, the splitting of economic power is weaker or non-existent. Therefore, the manufacturer acquires a certain degree of influence on the market.

The degree of market imperfection depends on the type of imperfect competition. In conditions of monopolistic competition, it is small and is associated only with the ability of the manufacturer to produce special varieties of goods that differ from competitive ones. Under an oligopoly, market imperfection is significant and is dictated by the small number of firms operating on it. Finally, monopoly means that only one manufacturer dominates the market.

7.1.1. Conditions for perfect competition

The perfect competition market model is based on four basic conditions (Figure 7.1).

Let's consider them sequentially.

Rice. 7.1.

In order for competition to be perfect, the goods offered by firms must meet the condition of product homogeneity. This means that the products of firms in the view of buyers are homogeneous and indistinguishable, i.e. products of different enterprises are completely interchangeable (they are complete substitute goods).

Uniformity

products

Under these conditions, no buyer would be willing to pay a hypothetical firm more than he would pay its competitors. After all, the goods are the same, customers do not care which company they buy from, and they, of course, opt for the cheapest. That is, the condition of product homogeneity actually means that the difference in prices is the only reason why the buyer can prefer one seller to another.

Small size and large number of market participants

Under perfect competition, neither sellers nor buyers influence the market situation due to the smallness and multiplicity of all market participants. Sometimes both of these sides of perfect competition are combined, speaking of the atomistic structure of the market. This means that there are a large number of small sellers and buyers operating in the market, just as any drop of water is made up of a gigantic number of tiny atoms.

At the same time, purchases made by the consumer (or sales by the seller) are so small compared to the total volume of the market that the decision to lower or increase their volumes creates neither surpluses nor deficits. The aggregate size of supply and demand simply "does not notice" such small changes. So, if one of the countless beer stalls in Moscow closes, the capital's beer market will not become one iota more scarce, just as there will not be a surplus of the drink beloved by the people if one more “point” appears in addition to the existing ones.

The inability to dictate the price to the market

These limitations (homogeneity of products, large number and small size of enterprises) actually predetermine that under perfect competition, market participants are not able to influence prices.

It is ridiculous to believe, say, that one seller of potatoes on the "collective-farm" market will be able to impose on buyers a higher price for his product, if other conditions of perfect competition are observed. Namely, if there are many sellers and their potatoes are exactly the same. Therefore, it is often said that under perfect competition, each individual firm-seller "takes the price", or is a price-taker.

Market entities under conditions of perfect competition can influence the general situation only when they act in agreement. That is, when some external conditions encourage all sellers (or all buyers) of the industry to make the same decisions. In 1998, Russians experienced this for themselves, when in the first days after the devaluation of the ruble, all grocery stores, without agreeing, but equally understanding the situation, unanimously began to raise prices for goods of a “crisis” assortment - sugar, salt, flour, etc. Although the increase in prices was not economically justified (these goods rose in price much more than the ruble depreciated), the sellers managed to impose their will on the market precisely as a result of the unity of their position.

And this is not a special case. The difference in the consequences of a change in supply (or demand) by one firm and the entire industry as a whole plays a large role in the functioning of the perfectly competitive market.

No Barriers

The next condition of the perfect militia conbotniks (the goal is to force the criminal "owners" of the market to show themselves, and then arrest them), then it fights precisely for the removal of barriers to entering the market.

On the contrary, typical for perfect competition no barriers or freedom to enter to the market (industry) and leave it means that resources are completely mobile and move from one activity to another without problems. Buyers freely change their preferences when choosing goods, and sellers easily switch production to more profitable products.

There are no difficulties with the termination of operations in the market. Conditions do not force anyone to stay in the industry if it does not suit their interests. In other words, the absence of barriers means the absolute flexibility and adaptability of a perfectly competitive market.

Perfect

information

The last condition for the existence of a market of perfect competition is

giving a standardized homogeneous product, and, therefore, operating under conditions close to perfect competition.

2. It is of great methodological importance, since it allows - albeit at the cost of large simplifications of the real market picture - to understand the logic of the company's actions. This technique, by the way, is typical for many sciences. So, in physics, a number of concepts are used ( ideal gas, black body, ideal engine) built on the assumptions (no friction, heat loss, etc.), which are never completely fulfilled in the real world, but serve as convenient models for describing it.

The methodological value of the concept of perfect competition will be fully revealed later (see topics 8, 9 and 10), when considering the markets of monopolistic competition, oligopoly and monopoly, which are widespread in the real economy. Now it is expedient to dwell on the practical significance of the theory of perfect competition.

What conditions can be considered close to a perfectly competitive market? Generally speaking, there are different answers to this question. We will approach it from the position of the firm, that is, we will find out in what cases the firm in practice acts as (or almost so) as if it were surrounded by a market of perfect competition.

Criterion

perfect

competition

First, let's figure out what the demand curve for the products of a firm operating in conditions of perfect competition should look like. Recall, first, that the firm accepts the market price, i.e., the latter is a given value for it. Secondly, the firm enters the market with a very small part of the total amount of goods produced and sold by the industry. Consequently, the volume of its production will not affect the market situation in any way, and this given price level will not change with an increase or decrease in output.

Obviously, under such conditions, the demand curve for the firm's products will look like a horizontal line (Fig. 7.2). Whether the firm produces 10 units, 20 or 1, the market will absorb them at the same price P.

From an economic point of view, the price line, parallel to the x-axis, means the absolute elasticity of demand. In the case of an infinitesimal price reduction, the firm could expand its sales indefinitely. With an infinitesimal increase in the price, the sale of the enterprise would be reduced to zero.

The presence of perfectly elastic demand for the firm's product is called the criterion of perfect competition. As soon as such a situation develops in the market, the firm begins to

Rice. 7.2. Demand and total income curves for an individual firm under perfect competition

behave like (or almost like) a perfect competitor. Indeed, the fulfillment of the criterion of perfect competition sets many conditions for the company to operate in the market, in particular, determines the patterns of income.

Average, marginal and total revenue of the firm

Income (revenue) of the firm is called payments received in its favor when selling products. Like many other indicators, economics calculates income in three varieties. total income(TR) name the total amount of revenue that the company receives. Average income(AR) reflects revenue per unit of product sold, or (which is the same) total revenue divided by the number of products sold. Finally, marginal revenue(MR) represents the additional income generated from the sale of the last unit sold.

A direct consequence of the fulfillment of the criterion of perfect competition is that the average income for any volume of output is equal to the same value - the price of the goods and that marginal income is always at the same level. So, if the price of a loaf of bread established in the market is 3 rubles, then the bread stall acting as a perfect competitor accepts it regardless of the volume of sales (the criterion of perfect competition is satisfied). Both 100 and 1000 loaves will be sold at the same price per piece. Under these conditions, each additional loaf sold will bring the stall 3 rubles. (marginal income). And the same amount of revenue will be on average for each loaf sold (average income). Thus, equality is established between average income, marginal income and price (AR=MR=P). Therefore, the demand curve for the products of an individual enterprise in conditions of perfect competition is simultaneously the curve of its average and marginal revenue.

As for the total income (total revenue) of the enterprise, it changes in proportion to the change in output and in the same direction (see Figure 7.2). That is, there is a direct, linear relationship:

If the stall in our example sold 100 loaves of 3 rubles, then its revenue, of course, will be 300 rubles.

Graphically, the curve of total (gross) income is a ray drawn through the origin with a slope:

That is, the slope of the curve gross income is equal to marginal revenue, which in turn is equal to the market price of the product sold by the competitive firm. From this, in particular, it follows that the higher the price, the steeper the straight line of gross income will go up.

Small business in Russia and perfect competition

The simplest example we have already cited, constantly occurring in everyday life, with the trade in bread, suggests that the theory of perfect competition is not as far from Russian reality as one might think.

The fact is that most of the new businessmen started their business literally from scratch: no one had large capitals in the USSR. That's why small business embraced even those areas that in other countries are controlled by big capital. Nowhere in the world do small firms play a significant role in export-import operations. In our country, many categories of consumer goods are imported mainly by millions of shuttles, i.e. not even just small, but the smallest enterprises. In the same way, only in Russia, “wild” brigades are actively engaged in construction for private individuals and renovation of apartments - the smallest firms, often operating without any registration. A specifically Russian phenomenon is also “small wholesale”- this term is even difficult to translate into many languages. In German, for example, wholesale is called "large trade" - Grosshandel, since it is usually carried out on a large scale. Therefore, the Russian phrase “small wholesale trade” is often conveyed by German newspapers with the absurd-sounding term “small-scale trade”.

Shuttle shops selling Chinese sneakers; and atelier, photography, hairdressing; vendors offering the same brands of cigarettes and vodka at metro stations and auto repair shops; typists and translators; apartment renovation specialists and peasants trading in collective farm markets - all of them are united by the approximate similarity of the product offered, the insignificant scale of the business compared to the size of the market, the large number of sellers, that is, many of the conditions for perfect competition. Mandatory for them and the need to accept the prevailing market price. The criterion of perfect competition in the sphere of small business in Russia is fulfilled quite often. In general, albeit with some exaggeration, Russia can be called a country-reserve of perfect competition. In any case, conditions close to it exist in many sectors of the economy where new private business (rather than privatized enterprises) predominates.

As already noted, the most important features of a market system are independence, independence, economic freedom of market entities, which implies, in particular, the freedom of the manufacturer in choosing the type, volume, and price of products. But if everyone has the right to freely produce and sell their product, then there are many producers (sellers) on the market, and competition objectively arises between them, competition - competition.

Competition(from lat. competitor - run together, collision) is the struggle of entrepreneurs for the most favorable conditions for the production and sale of goods in order to obtain maximum profit. The Law of the Russian Federation “On Competition and Restriction of Monopolistic Activities in Commodity Markets” defines competition as follows: “competition is the competitiveness of economic entities when their independent actions effectively limit the ability of each of them to unilaterally influence the general conditions for the circulation of goods in the relevant commodity market” (Art. 4. Appendix 5.1).

The importance of competition cannot be overestimated. It is in the course of competition in a market economy that the questions are resolved: what, how and for whom should be produced.

Competition is the way effective distribution limited resources society. If the supply is greater than demand, then a struggle inevitably arises between sellers, they are forced to reduce the price, which, as a rule, leads to a reduction in the volume of production of this product and to a decrease in the resources invested in this production. If demand is greater than supply, then competition arises between buyers, each of them seeks to offer a higher price for a scarce product - the price rises, supply increases, i.e. more resources are involved in the production of this product.

To survive in the competition, the entrepreneur must produce exactly what the consumer prefers. This means that resources (factors of production) are directed to those industries where they are most needed.

Competition performs stimulating function. The desire to stay on the market, to maximize their profit, makes the entrepreneur improve his production, improve product quality, and reduce production costs. In a competitive struggle, each seller, thinking primarily about his own benefit, offers better or cheaper goods, thereby benefiting his customers and the economic well-being of society as a whole.

Through competition, income distribution in accordance with the contribution and efficiency of the use of factors of production. Efficient use of resources allows manufacturers to obtain high income, with inefficient use of resources, they incur losses and can be forced out of the market.

There are different types of competitive behavior:

Creative (creative) - behavior aimed at creating preconditions that provide superiority over rivals;

Adaptive - taking into account innovative changes in production (copying) and proactive actions of rivals;

Providing (guaranteeing) - behavior aimed at maintaining the achieved positions.

From point of view competitive activity in a particular market there are: leaders; leadership contenders; slaves; newcomers.

It is obvious that the “followers” are less active in the competitive struggle, it reaches more sharpness between the “leaders” and “applicants for leadership”, and the most active, attacking competitors are the “newcomers”.

In order to provide the best opportunities for marketing their products, sellers use different methods of competition:

price competition, when a manufacturer, in order to create more favorable conditions on the market for his products and undermine the position of a competitor, reduces the price by reducing production costs. If the seller occupies a dominant position in a particular market, then he can set a monopoly low price for products without changing production costs.

non-price competition: raising the technical level, product quality, launching new products, creating substitute products, after-sales service, advertising. Non-price competition is the most widespread in the modern world.

All of these are methods. honest, fair competition struggle, they are "legal" in nature. Fair competition leads to consumer benefit(he gets more diversified products, best quality, at lower prices).

Competition may be dishonest, dishonest. Such competition is understood as ways to strengthen the market position of the company, associated not with improving the quality of products and reducing the costs of its production, but with the use of methods such as:

Selling at a price below cost;

Establishing discriminatory (different for different buyers) prices or commercial conditions;

Establishing the dependence of the supply of specific goods on the adoption of restrictions on the production of competing goods;

Unfair copying of competitors' products;

Violation of quality, standards and conditions for the supply of goods;

Industrial espionage;

Poaching of leading specialists from competing firms, etc.

Unfair competition is prohibited by the laws of most market economies, civil and criminal codes. The Law of the Russian Federation “On Competition and Restriction of Monopolistic Activities in Commodity Markets” defines unfair competition as “any kind aimed at acquiring advantages in entrepreneurial activity actions of economic entities that are contrary to the provisions of the current legislation, business practices, the requirements of integrity, reasonableness and fairness and may cause or have caused losses to other economic entities - competitors or damage them business reputation”(Article 4). The law does not allow unfair competition, including:

Distribution of false, inaccurate or distorted information that can cause losses to another business entity or damage its business reputation;

Misleading consumers about the nature, method and place of manufacture, consumer properties, quality of goods;

Incorrect comparison by an economic entity of the goods it produces or sells with the goods of other economic entities;

Sale of goods with illegal use of the results of intellectual activity...

Receipt, use, disclosure of scientific, technical, industrial or trade information, including trade secrets, without the consent of its owner (Article 4).

So the competition is essential tool market mechanism, a way to achieve market equilibrium. However, the nature of competition may be different. Depending on the ratio of competition and monopoly, two types of market are distinguished: perfect and imperfect competition.

27. Perfect, free or pure competition- an economic model, an idealized state of the market, when individual buyers and sellers cannot influence the price, but form it with their contribution of supply and demand. In other words, this type market structure, where the market behavior of sellers and buyers is to adapt to the equilibrium state of market conditions.

Features of perfect competition:

An infinite number of equal sellers and buyers

Homogeneity and divisibility of products sold

no barriers to entry or exit from the market

high mobility of factors of production

Equal and full access of all participants to information (prices of goods)

In the case when at least one feature is absent, competition is called imperfect. In the case when these signs are artificially removed in order to occupy a monopoly position in the market, the situation is called unfair competition.

In some countries, one of the widely used types of unfair competition is the giving of bribes, explicitly and implicitly, to various representatives of the state in exchange for various kinds of preferences.

David Ricardo revealed a natural tendency in conditions of perfect competition to reduce the economic profit of each of the sellers.

In a real economy, the exchange market most resembles a perfectly competitive market. In the course of observing the phenomena of economic crises, it was concluded that this form of competition usually fails, which can be overcome only through external intervention.

Resource Allocation Efficiency- the optimal allocation of resources between firms and industries, which allows you to produce aggregate products that best meet the needs of consumers. The criterion for the efficiency of resource allocation is the equality of price (p) and marginal cost (MC). The discrepancy between the indicated values means for individual firms less than the maximum possible profits, as well as underallocated resources (p > MC) or their excessive amount (p< МС).

Under pure competition, profit-driven entrepreneurs will produce the output at which price and marginal cost equalize. This means that resources in a competitive environment are distributed efficiently.

28.Monopolistic competition: equilibrium conditions for the producer in the short and long run. Efficiency of the market of monopolistic competition.

Monopolistic competition- type of market structure of imperfect competition. This is a common type of market, the closest to perfect competition.

Monopolistic competition is not only the most common, but also the most difficult to study form of industry structures. An exact abstract model cannot be built for such an industry, as can be done in cases of pure monopoly and pure competition. Much here depends on the specific details that characterize the manufacturer's product and development strategy, which are almost impossible to predict, as well as on the nature of the strategic choices available to firms in this category.

Thus, most of the world's enterprises can be called monopolistically competitive.

Variants of equilibrium of the firm in the short and long run

A perfectly competitive firm, as already noted, is quite rare in the economy. However, the analysis of the behavior of such a firm allows us to compare the "ideal" market with the real one. The behavior of a perfectly competitive firm is characterized as adaptive, since it adjusts costs and production volumes to an externally set market price. To analyze the behavior of a perfectly competitive firm in the short and long term, it is necessary to determine their differences.
In contrast to the long run, in the short run the volume of production capacity remains unchanged. In the short term, the manufacturer does not have time to change the size of production areas, the amount of equipment used. In the short run, the number of firms in the market does not change, so the market price remains unchanged. Economic profit cannot be at zero. In the long run, the manufacturer can change both the amount of equipment used and the size of production capacity. In addition, the number of firms in the market may change in the long run, as there are no economic or legal barriers to entry. As a result of the process of free entry and entry of new firms, zero economic profit is possible.
What will be the behavior of a competitive firm in the short run if the firm faces a choice - to stop production or produce a certain amount of output? In the short run, a competitive firm may operate at a loss because it expects to make a profit in the future. What is the termination condition? In order to answer this question, it is necessary to analyze the ratio of price (P) and average variable costs (AVC). If the price turns out to be higher than the average variable costs, then, accordingly, the income brought by each unit of output will fully cover the variable costs and partially the fixed ones. However, fixed costs must always be covered: both when the product is released and when its release is suspended. Therefore, it becomes necessary to continue production for their partial payment. If the price is below average variable costs, then both fixed and variable costs will not be paid in full. In this situation, it is more expedient to suspend production. However, this does not mean a complete closure of production. But if the firm is able to pay fixed costs, then it can stay in the market and continue production if prices rise. Of course, some firms, unable to withstand such a tough situation for a long time, will be forced to leave the industry. If we represent this situation graphically, then point A will be the exit point of the firm from the market (Fig. 9.6).

Rice. 9.6. The supply curve of a competitive firm in the short run.

In the long run, the economic profit of a perfectly competitive firm can be zero. Why? In the long run, the number of firms in a market may change as some firms enter the industry and others leave. As already noted, this is due to the absence of any barriers. However, the process of entering and exiting the market may stop. The reason for this may be the lack of economic profit (Fig. 9.7). There will be no economic profit if the price coincides with the minimum long-run average cost (LAC):

Rice. 9.7. Equilibrium of a competitive firm in the long run

29. Oligopoly: the essence of oligopoly; forms of interaction between firms oligopolistic market and the factors that determine them. Oligopoly based on cooperation (collusion) of firms; models of competitive pricing in an oligopolistic market.

Oligopoly- a type of market structure of imperfect competition, which is dominated by an extremely small number of firms. Examples of oligopolies include manufacturers of passenger aircraft, such as Boeing or Airbus, car manufacturers, such as Mercedes, BMW, etc. Another definition of an oligopolistic market can be a value of the Herfindahl index greater than 2000. An oligopoly with two participants is called a duopoly

Oligopoly in the commodity market. Oligopolistic pricing models

The oligopolistic market is characterized by: a small number of firms (2-7); The proportion of each is quite large; standardized (steel, cement) or differentiated (cars, cigarettes) products; Entry to the market is difficult (by the same barriers that exist in a monopolistic market); the need to take into account the possible reaction of rivals when making decisions; · the absence of a single pricing model, while the main rule of profit maximization (MR=MC) is taken into account. In oligopolistic markets, firms exercise control over prices and production volumes, have profits in both the short and long run. Let's name some pricing models. Price war model (conscious rivalry). A price war is a gradual price reduction by rival firms in an oligopolistic market. This situation arises if a competitor is tempted to increase their sales by cutting prices and thus capturing the sales market. All firms in the industry are involved in this process. The price war continues until the price drops to the level of average cost; economic profit in this case is already equal to zero. Schedule. Price war model (equilibrium at P=AC)

Price wars are good for buyers, oligopolistic firms end up losing their revenues (except perhaps the firm starting the war). Therefore, this situation does not occur often. The collusion model is more common. The firms reach an agreement (in the cartel firm) on prices and outputs. This makes it possible to limit competition, reduce uncertainty and increase profits. But there are obstacles to collusion (differences in costs, legal obstacles, the possibility of new competitors, the size of firms, etc.), so it is short-lived. Schedule. Collusion Model (MR=MC; P>AC)

Another model for coordinating the price behavior of oligopolists is price leadership, in which one of the producers-sellers receives the status of a price leader recognized by others. He regulates the price of products, all other firms follow him. The price leader assumes the risk of being the first to start adjusting the price to changing market conditions, while adhering to the following tactics: sets the price taking into account the profit maximization rule MR=MC in order to prevent other firms from entering the industry and maintain its oligopolistic structure; Adjusts the price infrequently (only if there is a significant change in demand or costs); · About the impending revision of prices is reported in the trade publications. Usually, two main types of price leadership are distinguished - the leadership of a firm with significantly lower costs than competitors and the leadership of a firm that dominates the market, but does not significantly differ from its followers in terms of costs. Schedule. Price Leadership Model

Cournot model. For the first time, the duopoly model (two competing firms) was proposed by the French mathematician and economist Augustin Cournot in 1838. The model assumes that firms produce homogeneous goods. Each firm must decide how much to produce, remembering that its competitor also decides on output, and that the price will ultimately depend on the combined output of both firms. The essence of the model is that, when making a decision, the oligopolist is guided by the desire to maximize his profit, assuming that the output of another oligopolist is given. Eventually, the process ends with their outputs equalizing, and then the duopoly reaches a Cournot equilibrium, in which each firm maximizes its profits.

Price rigidity is the basis of the broken demand curve model of the oligopoly firm. The model explains price rigidity, but not price setting itself. Firms seek price stability. Even if costs decrease or demand falls, oligopolists are in no hurry to reduce the price (to be afraid, believing that they may be misunderstood by competitors, and a price war will begin). If costs or demand grow, they do not seek to raise the price (think: competitors may not follow them). Any price change will result in undesirable consequences so firms try to keep the price down.

30 Patterns of formation of supply and demand for economic resources.

The patterns of demand formation can be expressed in two ways:

1.Tabular:

R, rub. 1 2 3 4 5

2.Graphic:

A demand curve is a curve showing how many economic goods buyers are willing to buy at different prices at a given time.

Factors affecting demand:

1. Price.

2. Non-price.

Non-price factors:

1. Changes in the cash income of the population.

2. Change in the structure of the population.

3.Change in prices for commodity substitutes.

4.Economic policy of the government.

5. Changing consumer preferences.

11. The concept of market supply, supply curves. Factors affecting the offer.

Supply is the willingness of manufacturers and sellers of goods to provide the market with a certain amount of goods at a given price. The law of supply is directly proportional between price and quantity.

Arguments in favor of the law of supply:

1. High price covers production costs and generates income.

2. The high price finances the expansion of production.

In the short run, the law of diminishing returns applies, since as the variable factor of production increases by the constant factor, the return on each additional unit of the increasing factor tends to fall. As a result of this law, an increase in production in the short run causes a rapid increase in costs.

Factors affecting the offer:

Non-price.

Non-price factors:

Resource prices.

New technologies.

Increasing taxes on producers - they cause an increase in costs and supply is reduced.