characteristics of a perfectly competitive market. Perfect competition market Marginal cost-marginal revenue method

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 not perfect 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 imperfect competition market, 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: he releases and therefore controls overall volume suggestions. 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 governments often allow systems to be installed cable television the only firm. Authorities usually grant a monopoly on the right to provide transport services, communication services, also 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

Solution:
A perfectly competitive market has the following characteristics:
- 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 equilibrium conditions of the firm will be the equality marginal income, 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); the prices are different, the film is the same, there are no significant differences in the costs of showing the film at different times.

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

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 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, little influence and cannot determine the essential conditions for 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 exist only ideally, since its characteristic features are not found in real economic systems in pure form. 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 impossible 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, free access of all producers to factors of production at equivalent prices is required. 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 applied production technology, factor prices and no 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.

Conditions for perfect competition

Additional conditions for the emergence of perfect competition	Characteristic
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 as getting wages as payment for wages or dividends on share capital.
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.
Lack of intermediaries	Also as additional condition 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 for constructing mathematical models, as it allows one 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

1. Berezhnaya E.V., Berezhnoy V.I. Mathematical Methods modeling of economic systems. - M.: Finance and statistics, 2008.
2. Volgina O.A., Golodnaya N.Yu., Odiyako N.N., Shuman G.I. Mathematical modeling of economic processes and systems. – M.: KnoRus, 2012.
3. Panyukov A.V. Mathematical modeling of economic processes. – M.: Librokom, 2010.

16.1. The economic nature of the perfect competition market: the essence and main characteristics of the market

The production costs discussed in the previous chapter make it possible to find out what the minimum costs can be at which a firm is able to produce a different volume of goods (services). This is important information for the company, since its knowledge will allow in the future to determine the optimal volume of production that will bring the maximum profit to this company.

The behavior of the firm has its own specifics, depending on what type of market structure the industry belongs to. Consider the behavior of a manufacturer in a perfectly competitive market. As part of achieving this goal, the following tasks are to be solved:

1. Describe the market of perfect competition as a type of market structure.

2. Reveal the features of demand formation for a firm-perfect competitor.

3. Formulate the rule of profit maximization, which should guide the behavior of a firm that focuses on obtaining the highest possible profit.

4. Explore the behavior of a competitive firm in the short term. Consider all possible directions of its decision-making regarding the volume of production and the supply of economic benefits.

5. Determine the firm's individual supply curve in the short run and the market supply curve.

6. Understand the mechanism of formation of long-term equilibrium in a competitive industry.

7. Explain why under conditions of perfect competition the most effective use economic resources of society.

The key aspects expressing the essence of market relations are the number of economic entities in the market (producers, consumers) and the nature of the links between them. These criteria determine structural organization market, a specific type of interaction between supply and demand.

Let us dwell on the study of the economic nature of the market of perfect competition. In a perfectly competitive market, all firms produce the same product. An individual firm is so small in relation to market size, that is, to market output, that its decisions to change output have absolutely no effect on the market price. Newly established firms have free entry into the industry if they are predicted to make a profit.

The most characteristic feature of this market is a large number of economic entities: both producers and consumers.

Under these conditions, each subject, due to the fact that it is economically negligible relative to the scale of the market, is not able to exert any noticeable influence on the formation of the market price.

Products sold on the market are homogeneous. This should be understood to mean that in the minds of consumers, all units of output are the same. That is, each manufacturer offers a product that is indistinguishable from the product of other manufacturers. This eliminates the grounds for non-price competition.

There are no barriers to entry into or exit from the market (financial, legal, etc.). The foregoing should be understood to mean that there are no major obstacles that could prevent new firms from entering the market or prevent existing firms from leaving it. Free entry and exit from the market is ensured by the mobility of production resources, the ability to easily redistribute them to more profitable industries at the moment.

The state does not interfere in relations between economic entities. There is no rigid binding of producers and consumers to each other.

Information about the state of the market situation is available to all economic entities. Each producer or consumer has complete information about the price, the quantity of the product, the cost of it, etc. Knowledge about the parameters of the market instantly spreads among the subjects of the market and it costs them nothing.

It is appropriate to emphasize that today, in reality, this type of market structure does not actually exist. No real market satisfies all of the above conditions simultaneously. The value of studying this type of market organization lies in the fact that it allows us to understand more real market structures, evaluate their effectiveness in comparison with this ideal, understand the mechanism of their functioning and its features. Thus, we should speak, first of all, about the analytical value of studying the market of perfect competition and its certain actual significance.

Considering the economic nature of a perfectly competitive market requires an examination of the demand that a competitive firm faces in the market.

The characteristics of this market given by us are the basis for the assertion that the market price is the result of the coordinated interaction of market demand and market supply. Each individual firm perceives it as given from outside, and any volume of production of this firm is not able to change the situation on the market.

Consequently, the demand curve for an individual firm in a competitive market is a horizontal line, precisely because the volume of production of this firm can in no way affect the market price and change it. The price is the result of the coordinated interaction of all manufacturers and all consumers in the market. What has been said can be graphically interpreted in figure 16.1.

Rice. 16.1. Formation of demand for a firm - a perfect competitor

The market price is the result of the coordinated interaction of market demand and market supply. The demand curve for an individual firm is a horizontal line because its output has no effect on the market price.

For further analysis, enter conventions: P – price; q is the volume of production of a competitive firm; Q is the volume of market production; d - demand for a separate competitive firm; D - market demand; S - market supply; E is a market equilibrium characterized by the market equilibrium price P Е and the market equilibrium sales volume Q Е.

Further research requires the introduction of a number of indicators into the analysis, such as: total income (TR), average income (AR) and marginal income (MR).

Total revenue can be defined as the product of the price and the firm's sales volume:

(16.1)

The average income shows the income generated by one sold unit of production:

(16.2)

Marginal revenue is defined as the change in total revenue that results from the sale of at least one more unit of output:

(16.3)

So we see that under perfect competition price is both average and marginal revenue. This means that the income from the sale of a unit of output is on average exactly its price and the income brought by the sale of each additional product is also its price.

16.2. The behavior of a firm that is a perfect competitor in the short run. Individual and market offer

The study of the behavior of a competitive firm in the short term should be based on the fact that the firm has the ability to change the volume of application of variable factors of production, that is, to intensify the utilization of production capacities, but cannot change the production capacities themselves.

The firm is not able to influence the price of products, so it concentrates all its attention on determining the optimal volume of production that ensures it receives the highest possible economic profit.

In the analysis that follows, we will assume that the only goal of the firm is to maximize profit (P(q)). Let's create the objective function of the company:

(16.4)

Profit is the difference between total revenue /TR/ and total costs /TC/, the values ​​of which depend on the volume of output. Thus, the firm's profit function can be represented as

The choice of the optimal volume of output, which allows you to get the maximum profit, involves an algebraic study of the profit function to the extremum /to the maximum/. Consequently, necessary condition profit maximization is the condition:

, (16.7)

because the expression

(16.8)

is the ratio of the change in total income to the change in output, that is, marginal income, and, accordingly, the ratio of the change in total costs to the change in output is nothing more than marginal cost

(16.9)

(16.11)

This condition (14.11) of profit maximization is satisfied with the only possible optimal production volume of the firm:

(16.12)

Based on this rule, the firm will increase its production until the increase in output by one additional unit will bring an increase in total revenue that exceeds the increase in total costs. The firm will stop increasing production when the increase in total revenue is equal to the increase in total costs. Since for absolutely competitive enterprise P=AR=MR, then the presented profit maximization condition can also be written as the equality of marginal costs to the price:

(16.13)

In fact, the first-order profit maximization condition can be satisfied twice, since the marginal cost of production first decreases with output growth, and then begins to increase. Therefore, it is possible to achieve equality of marginal cost and marginal income (price) both in the area of ​​decreasing MC curve and in the area of ​​its increase. To distinguish between these cases, it is necessary to introduce a profit maximization condition of the second order (sufficient condition). Mathematically, this means that you need to take the second derivative of the profit function. In the case when it is positive, marginal revenue is compared with marginal cost in the area of ​​their decrease and the firm maximizes negative profit, that is, losses. This means that further expansion of production will reduce overall losses. If the second derivative of the profit function is negative, then the maximum positive profit is reached. The volume of output corresponding to this condition is optimal, since marginal revenue has caught up with increasing marginal costs and further expansion of production will not bring an increase in total profit.

It is appropriate to emphasize that economists call the maximum profit both the maximum of the positive difference between gross revenue and gross costs, and the minimum of the negative difference between the same values. Therefore, the minimum loss can be considered as the maximum profit, if a positive profit cannot be obtained.

Graphically, the achievement of the goal can be interpreted in two ways: by comparing total revenue and total cost, and by comparing marginal revenue and marginal cost.

Continuity in the use of these approaches is obvious. We will show this graphically, first of all, in the case of maximizing positive profit (Fig. 16.2).

Rice. 16.2. Maximization of positive economic profit by a competitive firm in the short run

Figure 16.2 shows that the optimal volume of production for the firm is the volume q *, since profit is maximized in this case. Its size corresponds to the area of ​​the quadrangle P E ABC, since the distance AB reflects the amount of profit per unit of production, and the distance CB characterizes the required number of units of production. With a smaller volume of production, the marginal revenue exceeds the marginal cost of production / and the total income exceeds the total costs not by the maximum value /, which indicates the possibility of obtaining additional profit by increasing output. With a volume of production exceeding q*, on the contrary, marginal cost is higher than marginal revenue. Consequently, the reduction in output to q * allows you to compensate for the loss of profit due to overproduction. It is important to note that at optimal output, the profit per unit of output is not optimal. However, profit per unit of output is not a criterion for maximizing total profit. Volumes q 1 and q 2 are the volumes of break-even issue, i.e. when economic profit is zero. This means that the firm, producing these volumes of products, has the opportunity only to fully cover its total costs with the total income received. The price at the same time allows only to reimburse the economic costs of production per unit of output, which indicates the absence of positive economic profit.

It is important to emphasize that at optimal output, the slope of the total revenue curve is equal to the slope of the total cost curve. Since the slope of the total revenue curve is nothing but marginal revenue, and the slope of the total cost curve is marginal cost.

The presented figure reflects the presence of two mutually complementary approaches to determining the optimal volume of production at which a competitive firm will receive the maximum profit. The first approach is based on using the profit maximization rule and involves comparing marginal revenue with marginal cost. The second approach is based on comparing the total income and total costs of the firm. The optimal output q* provides the firm with a profit, the size of which corresponds to the area of ​​the REABC quadrangle. The amount of profit received with a given volume can also be represented as a segment of maximum length as the difference between total income and total costs, that is, when the total income exceeds the total costs as much as possible.

Thus, the point at which the slopes of these curves coincide with each other corresponds to the profit maximization criterion.

The case when the firm minimizes negative profits (losses) is shown in Figure 16.3.

Rice. 16.3. Minimization of negative profit by a competitive firm in the short run

The firm, producing the volume of output q*, incurs economic losses, the size of which corresponds to the area of ​​the quadrilateral PEABC. In this case, the loss per unit of output will be AB, and the optimal output corresponds to the length of the PEA segment. For a given output, the firm's total cost exceeds its total revenue by the smallest possible amount. It is advisable for the firm to continue working in the direction of minimizing its losses, since then it incurs losses no greater than in the event of a closure. If the firm completely ceases to operate, then its losses will be completely uncovered. fixed costs production.

Figure 16.3 shows that the optimal output for a firm - a perfect competitor is the volume q *, since it incurs minimal losses corresponding to the area of ​​the quadrangle P E ABC. The volume of production q ~ cannot be considered as optimal, since, despite the observance of the first-order profit maximization condition, the second condition (sufficient) is not met. For a given volume of production, the firm faces the maximum amount of negative profit, that is, losses. Consequently, further reduction of losses requires the expansion of production to the output of q * , and the firm will begin to receive ever-decreasing (up to the volume of q *) negative profit.

If the price prevailing in the market does not allow covering the minimum value of the average variable costs of production, then the firm should leave the industry in order to avoid bankruptcy due to the inability to cover priority payments (Figure 16.4).

Rice. 16.4. The situation of the exit of a competitive firm from the industry in the short run

A firm producing output q* incurs an economic loss equal to the area of ​​the quadrilateral PEABC. The loss consists of fully uncovered fixed costs of production, the size of which corresponds to the area of ​​the quadrangle DKBC, and partially uncovered variable costs of production, the size of which corresponds to the area of ​​the quadrangle PEAKD. The economic loss of the firm in case of closure is equal to the fixed costs of production. Obviously, it is not economically feasible for the firm to continue operating under the current conditions and it should leave the industry.

Figure 16.4 shows that by producing the volume q *, the company will not only be unable to cover the full fixed costs of production, but also part of the variable costs, which indicates its insolvency in priority payments. The total amount of losses will be the area of ​​the quadrangle P E ABC (moreover, S KBCD are completely uncovered fixed costs of production, and are partially uncovered variable costs of production). In this situation, there is only one way out for the company - to leave the industry.

The foregoing allows us to determine the firm's individual supply curve in the short run. This curve shows how much output the firm will produce at each possible price. Graphically, this curve is the portion of the marginal cost curve above the average variable cost curve (Figure 16.5).

Rice. 16.5. Individual offer of a competitive firm in the short run

A firm's individual supply curve is the portion of its marginal cost curve above its average variable cost curve. At any possible price less than the minimum value of AVC, the firm's supply will be zero, since it will completely cease production under these conditions and leave the industry. For any possible price greater than the minimum value of AVC, the firm's supply is determined by the shaded portion of the marginal cost curve.

In order to construct a short-run market supply curve, it is necessary to sum up the individual offers of all firms at any possible price.

i- type of goods,

j - manufacturer of the i-th product, ,

q ij - individual offer of the i-th product j manufacturer,

Market supply of the i-th product.

Graphically, the formation of a market supply can be represented as follows (Figure 16.6).

Rice. 16.6. Market competitive offer in the short run

The market supply curve is the relationship between price and quantity supplied by all firms to the market. It can be obtained by horizontally summing the individual marginal cost curves of all firms in the market and supplying them. Therefore, the quantity supplied in the market at each possible price is the sum of the individual quantities supplied by all firms in the market.

The market supply curve in the short run shows the total output of all firms in an industry at any possible price. Market supply is the total supply of all individual firms. According to the presented graph, the supply of an economic good in the market can be obtained by adding the supply curves of individual firms. Suppose there are only two firms in the industry. This simplification of reality will make it possible to better understand the mechanism of formation of a market supply. Each firm's individual supply curve corresponds to that part of the marginal cost curve that lies above the average variable cost curve.

If the market price is below P1, then the market supply will be zero. Since this price does not allow the firms on the market to cover even the minimum average variable costs of production. At a price in the range from P1 to P2, only firm 2 will offer its products on the market and, therefore, the market supply curve will coincide with the supply section of firm 2 /segment of its marginal cost curve MC2/. At the price P2, the market supply will be formed by both firms, the volume of which is equal to the sum of the individual supply volumes of firm 1 and firm 2. It is obvious that the industry supply curve has an upward form. The break in this curve at the price P2 is explained by the small number of firms on the market. The more firms there are in the market, the less visible such breaks are.

So, according to the presented schedule, the supply of an economic good on the market will take place if the price is not less than P 1, and, accordingly, the volume is not less than the value of Q 1. The market supply will be presented by the second producer until the price becomes equal to P 2. At a given price, the first producer enters the market, and subsequently the two producers will together form a market supply.

16. 3. The behavior of a firm - a perfect competitor in the long run

In the long run, a firm that is a perfect competitor has greater mobility due to the mobility of all its economic resources. Any firm is capable of both entering and exiting the market.

If the firm had a positive profit in the short term while operating in the industry, then this attracts new firms to enter the industry, as a result of which the market supply increases, and the price in the market falls, therefore firms lose profit. This "extinguishes" interest in this industry, the supply on the market is reduced due to the outflow of firms from the industry, as a result, the price rises. This means that firms that remain in the market have the opportunity to earn positive profits. This movement will continue until the price becomes equal to the minimum of the average total cost of production. It is this equilibrium price does not “generate” interest among new firms to enter the industry, nor does it force existing firms to leave it, since the price allows them to fully cover only the minimum costs per unit of output, while economic profit is zero.

A graphical interpretation of what has been said is shown in Figure 16.7.

q

q

Rice. 16.7. Optimization of output by a competitive firm in the long run

In the long run, while maintaining the price of PE1, there will be an influx of firms into the industry. As the number of firms in an industry increases, the market supply increases from S1 to S2 and the price falls from PE1 to PE2. Under these conditions, no firm will be able to get even a normal profit at any scale of production. Therefore, a massive outflow of firms from this industry will begin, since the main goal of their activity, which is the maximization of economic profit, is not achieved, and they will begin to suffer losses. Thus, the market supply is reduced to S3, which allows established firms at the prevailing price of PE3 to receive economic profit in a larger volume. Naturally, this is a powerful incentive for the influx of new firms into the industry. Equilibrium in the long run will be achieved if all firms receive zero economic profit and if market demand is equal to market supply, that is, at an equilibrium price.

According to the above, long-term economic equilibrium in a competitive market can be represented graphically in Figure 16.8.

Rice. 16.8. Long run equilibrium of a competitive firm

A firm in an industry earning zero economic profit has no incentive to leave the industry. At the same time, other firms are not interested in entering this industry. Therefore, in the long run, a competitive firm maximizes its profit at the level of output at which long-run marginal cost is zero.

The presented analysis allows us to conclude that in the long run, a firm - a perfect competitor in equilibrium chooses the volume of production at which the price is equal to the minimum average production costs, and, consequently, long-term marginal costs.

In a perfectly competitive industry, firms are only able to maintain profits for a limited period of time. Appearing in more enterprising and successful producers and being a powerful catalyst for firms in other industries, it inevitably attracts them to enter a new industry for themselves, which ultimately reduces its value to zero.

The analysis of long-term supply cannot be carried out similarly to short-term: first, obtaining the individual supply curve of the firm, and then on its basis, by summing the supply curves of individual firms, obtaining the market supply curve of the industry. The fact is that in the long run there is a constant movement of firms in the market: entry into the market and exit from it as the market situation changes, and, consequently, the market price. This makes it impossible to simply sum up the supply of individual firms, since it is impossible to absolutely reliably say which firms will maintain their presence in the market when market prices change.

To determine the long-term market supply, it is necessary to formulate the conditions for its achievement. We will proceed from the assumption that all firms have the same technological level of production, therefore, they can expand their production not due to technological innovations, but by attracting more economic resources. Simplifying reality, we will also assume that the situation in factor markets / that is, the conditions for their functioning / does not change when production changes in our hypothetical industry.

The shape of the market supply curve in the long run depends on how a change in the volume of production will affect the prices of attracted economic resources, and, consequently, the costs as a result of a change in industry output. In accordance with this, it is customary to distinguish three types of industries: with constant / unchanged /, increasing and decreasing costs. So far, we have considered the impact on the formation of the market price of changes from the supply side. In the long run, changes in the demand for an industry's products can be significant, and it is therefore important to consider the implications of these changes.

Let us first consider an industry with constant costs / cm. fig.16.9/.

Fig. 16.9. Long-term equilibrium in an industry with constant costs

An increase in market demand from D1 to D2 raises the price from P1 to P2. A firm in the industry increases output from q1 to q2. This results in a positive profit, since the new equilibrium price P2 exceeds ATC at the new output q2. In this regard, the influx of new firms into the industry begins, as a result of which the market supply increases from S1 to S2. Industry production grows, and the equilibrium price decreases to the initial level P1. The industry's long-term market supply curve corresponds to the straight line SL, which connects the long-term market equilibrium points E1 and E2.

Suppose the initial equilibrium of the industry in the short run can be represented by the intersection of the demand curve D1 and the supply curve S1, which corresponds to the equilibrium price P1. Point E1 lies on the long-term market supply curve SL and indicates that at the price P1, the output in the industry will be Q1. Each firm in the industry, being in long-run equilibrium, produces q1 units of output. For a given output, the price P1 corresponds to long-run marginal cost and long-run average cost of production. It is also characteristic for the firm to comply with the conditions of short-term equilibrium, the equality of price to marginal costs. Let us assume that due to some circumstances the market demand of the short-term period has increased to D2. In the short run, this will push the price up to P2 as the market demand curve D2 crosses the market supply curve S1 at point E2. Each firm in the industry, following the profit maximization rule, will increase its output from q1 to q2 in accordance with its short-run marginal cost curve. With a similar reaction from all the firms in the market, they will be able to increase their positive profits. Of course, such a situation is attractive for expanding their activities by functioning firms on this market and also it will attract outside firms to enter the industry. Thus, the market supply of the industry in the short run will increase from S1 to S2.

The specifics of an industry with constant costs is that the influx of new firms into the industry and an increase in the market volume of output will not affect the change in the costs of already functioning firms. The fact is that the growth in demand for economic resources attracted to the industry due to the increase in the number of firms in the industry will not change their prices, and, therefore, will not change the costs of functioning firms. Therefore, the long-run average cost curve of these firms will remain unchanged and new firms will operate under the same LATC curve.

Thus, the influx of new firms into the industry will lead to an increase in output to Q3 and a decrease in the equilibrium price to P1. At the same time, the volume of production increases until the profit received by firms becomes zero. Zero profit does not encourage new firms to enter the industry, and the involved firms to leave it. The industry reaches a new long-run equilibrium at point E3, at which the demand curve D2 intersects the supply curve S2. Note that the output of each firm is reduced to the initial value q1, and sectoral production increases to Q3 due to the influx of new firms.

The long-run market supply curve in an industry with constant costs is a horizontal line. This means that the equilibrium price does not change regardless of changes in industry output, which is affected by changes in market demand. For each volume of output that is equilibrium, the equality of price and long-run average production costs is observed.

Now consider an industry with increasing costs / cm. fig.16.10/.

Rice. 16.10. Long-run equilibrium in an industry with increasing costs

An increase in production in an industry with increasing costs causes an increase in the price of all or some of the inputs used in that industry. This causes the typical firm's average cost of production to rise and its ATC curve to shift upward. Initially, an increase in demand from D1 to D2 leads to an increase in the market price from P1 to P2, which is a powerful incentive for the influx of new firms into the industry due to the positive profits that have appeared for functioning firms, as well as for the expansion of the latter's production. Gradually, the market supply increases, and the price falls to P3. A new equilibrium in the market is reached at point E3. Long-term supply is represented by an ascending SL curve due to rising costs and connects its long-term equilibrium points E1 and E3.

Let us assume that there is a similar shift in market demand towards its increase from D1 to D2. The consequence of this will be a violation of the long-term market equilibrium, represented by the point E1 and an increase in price to the value of P2, and the volume of production in the short term from Q1 to Q2. A functioning firm in an industry seeks to increase its output in order to maximize its profits. The opportunity to generate positive economic profits attracts new firms to the industry. However, the specificity of this industry is that the growth in demand for all / or some / economic resources is accompanied by an increase in prices for them, and, consequently, leads to an increase in the cost of production. Therefore, an increase in industry production as new firms enter the industry and the scale of activities of functioning firms expands means an increase in the costs of their production. The situation in the industry will be characterized by an upward shift in the SATC, LATC, SMC curves for all firms. The adaptation of firms to changing demand will be expressed in two-way pressure on profits: on the one hand, the emergence of new firms increases market supply and lowers the price, and, on the other hand, there is an increase in production costs of each of the firms on the market, therefore, the new equilibrium price should be above the original. Ultimately, this will lead to a shift in market supply to position S2 and the establishment of a new equilibrium at point E3 with a higher, compared to the original, equilibrium price P3. The new equilibrium price in the long run is equal to the new average cost of production. The sectoral supply curve in the long run SL passes through the long-run equilibrium points E1 and E3. The long-term market supply curve in an industry with increasing costs is upward. This is due to the increase in production costs per unit of output, and therefore the expansion of market production is associated with an increase in prices to stimulate firms to increase output.

Finally, consider an industry with decreasing costs /cm. fig.16.11/.

Rice. 16.11. Long-run equilibrium in an industry with decreasing costs

A consequence of the growth in demand is the expansion of production in the industry. The firm's long-run average cost curve shifts downward as the price of economic inputs falls. Therefore, a new equilibrium in the industry is achieved at a lower price. The long-term industry supply curve is sloping down.

A sudden increase in demand from D1 to D2 leads to a violation of the initial equilibrium at point E1 and a rise in price to P2. The emergence of positive profits for firms stimulates the growth of production in the industry both through the expansion of existing firms and through the entry of new firms into the market. An increase in demand for economic resources can lead to a decrease in prices for them, and, consequently, there is a decrease in production costs in the industry that consumes them. This can be represented by a downward shift of the SATC, LATC, SMC curves for each firm. The growth of market supply reflects the curve S2. Thus, a new long-term equilibrium in the industry will be reached at point E3 at an equilibrium price P3, which is less than the original one due to a decrease in average production costs. The new equilibrium price is still equal to the average cost of production.

The long-term market supply curve in the industry with decreasing costs SL has a downward form due to cheaper production and passes through the long-term equilibrium points E1 and E3.

The presence of industries with constant, increasing and decreasing costs can be explained by the dependence of the costs of an individual firm on its output, as well as on the output of the industry as a whole.

16.4. Market Efficiency of Perfect Competition

The conclusion we made in the previous paragraph about the condition for achieving equilibrium in the long run for a single firm, regardless of whether the industry is an industry with increasing costs, decreasing or constant costs, can be represented as: P=MR=ATC=MC (16.14)

The presented equality is of great socio-economic importance for the public assessment of the efficiency of the perfect competition market.

The market of perfect competition is efficient from the point of view of the distribution and use of limited economic resources of society, and, therefore, it contributes to the fullest possible satisfaction of the needs of society.

Speaking about the efficiency of this type of market, one should single out not only the efficiency of resource allocation, but also its production efficiency. Efficiency of resource allocation is achieved when resources are distributed across spheres and sectors of the economy in such a way that the benefits created are most needed by society and the established structure of social production cannot be changed in order to derive a net benefit for society. Production efficiency assumes that every economic good is produced at the lowest cost.

Condition production efficiency is the equality: P = ATC min . It means that firms should use the best (less expensive) technology available to them. Otherwise, they face the threat of bankruptcy. This, of course, benefits the consumer, who benefits from the lowest price of the good.

The resource allocation efficiency corresponds to the condition: P = MC. Production should not only be technologically efficient. It should also ensure the receipt of economic benefits that are most significant for society. The type of market structure under consideration ensures such a distribution of resources in which the created benefits are most in demand by society, that is, there is an urgent need for them on the part of consumers and they correspond to the preferences of consumers as fully as possible.

The monetary value of any economic good is the measure that gives an idea of ​​the relative value in the eyes of society of a unit of this good (its marginal value). At the same time, the marginal cost of production makes it possible to estimate the benefits that could be obtained using the economic resources actually involved in the production of this good. Therefore, the price of a good gives an idea of ​​the degree of satisfaction of the needs of society received from each additional unit of this good, and the marginal cost of producing an additional unit of a good reflects the loss of society in the form of those benefits that could be obtained with an alternative use of resources, but actually involved in production. more of this good.

If the firm's production volume is less than the volume corresponding to the criterion of efficient allocation of resources, then this indicates an underallocation of resources for the production of this product from a social point of view and a shortfall in profit by the firm (relative to the maximum possible). Conversely, when the volume of production exceeds the volume corresponding to the criterion under consideration, then the society values ​​an additional unit of the produced good lower than the alternative economic goods that could be produced on the basis of the economic resources involved, which means that there is no efficient allocation of resources and the possibility of their redistribution with the purpose of increasing the net benefit of society and the profit of the firm. Only when price equals marginal cost is a perfectly competitive firm able to maximize its profits, and society's resources do not require further redistribution.

A competitive pricing system will reallocate resources in response to changes in consumer tastes, in technology, in resource endowments, in order to maintain resource allocation efficiency over time.

Despite the limited possibility of developing a market of perfect competition today, the analysis undertaken is valuable, since many industries are close in nature to competitive markets: Firms in these markets face highly elastic demand curves and enter and exit businesses with relative ease. It is also possible that even when there is only one firm in the market, it can behave like a perfect competitor, under certain circumstances.

Now let us turn to the study of the economic nature of the market, in which one economic entity is represented - the manufacturer - the market of pure monopoly, the complete opposite of the market of perfect competition.

In practice, sometimes firms may pursue other goals, such as maximizing total revenue. However, with regard to competitive firm profit maximization is in most cases the only way to survive, to stay in the market.

The market economy is a complex and dynamic system, with many connections between sellers, buyers and other participants in business relations. Therefore, markets, by definition, cannot be homogeneous. They differ in a number of parameters: the number and size of firms operating in the market, the degree of their influence on the price, the type of goods offered, and much more. These characteristics define types of market structures or otherwise market models. Today it is customary to distinguish four main types of market structures: pure or perfect competition, monopolistic competition, oligopoly and pure (absolute) monopoly. Let's consider them in more detail.

The concept and types of market structures

Market Structure- a combination of characteristic industry features of the organization of the market. Each type of market structure has a number of characteristics that are characteristic of it, which affect how the price level is formed, how sellers interact in the market, and so on. In addition, the types of market structures have varying degrees of competition.

Key characteristics of types of market structures:

• the number of sellers in the industry;
• firm sizes;
• number of buyers in the industry;
• type of goods;
• barriers to entry into the industry;
• availability of market information (price level, demand);
• the ability of an individual firm to influence the market price.

The most important characteristic of the type of market structure is level of competition, that is, the ability of a single seller to influence the general market situation. The more competitive the market, the lower this possibility. Competition itself can be both price (change in price) and non-price (change in the quality of goods, design, service, advertising).

Can be distinguished 4 main types of market structures or market models, which are presented below in descending order of the level of competition:

• perfect (pure) competition;
• monopolistic competition;
• oligopoly;
• pure (absolute) monopoly.

table with comparative analysis The main types of market structure is shown below.

Table of the main types of market structures

Perfect (pure, free) competition

perfect competition market (English "perfect competition") - characterized by the presence of many sellers offering a homogeneous product, with free pricing.

That is, there are many firms on the market offering homogeneous products, and each selling firm, by itself, cannot influence the market price of this product.

In practice, and even on a global scale national economy Perfect competition is extremely rare. In the 19th century it was typical for developed countries, but in our time, only agricultural markets, stock exchanges or the international currency market (Forex) can be attributed to markets of perfect competition (and even then with a reservation). In such markets, a fairly homogeneous product (currency, stocks, bonds, grain) is sold and bought, and there are a lot of sellers.

Features or conditions of perfect competition:

• number of sellers in the industry: large;
• size of firms-sellers: small;
• goods: homogeneous, standard;
• price control: none;
• barriers to entry into the industry: practically absent;
• competitive methods: only non-price competition.

Monopolistic competition

Monopolistic competition market (English "monopolistic competition") - characterized by a large number of sellers offering a diverse (differentiated) product.

In conditions of monopolistic competition, entry to the market is fairly free, there are barriers, but they are relatively easy to overcome. For example, in order to enter the market, a firm may need to obtain a special license, patent, etc. The control of firms-sellers over firms is limited. The demand for goods is highly elastic.

An example of monopolistic competition is the cosmetics market. For example, if consumers prefer Avon cosmetics, they are willing to pay more for it than for similar cosmetics from other companies. But if the price difference is too big, consumers will still switch to cheaper counterparts, such as Oriflame.

Monopolistic competition includes markets for food and light industry, market medicines, clothes, footwear, perfumery. Products in such markets are differentiated - the same product (for example, a multi-cooker) from different sellers (manufacturers) can have many differences. Differences can manifest themselves not only in quality (reliability, design, number of functions, etc.), but also in service: the availability of warranty repairs, free shipping, technical support, payment by installments.

Features or features of monopolistic competition:

• number of sellers in the industry: large;
• size of firms: small or medium;
• number of buyers: large;
• product: differentiated;
• price control: limited;
• access to market information: free;
• barriers to entry into the industry: low;
• competitive methods: mainly non-price competition, and limited price.

Oligopoly

oligopoly market (English "oligopoly") - characterized by the presence on the market of a small number of large sellers, whose goods can be both homogeneous and differentiated.

Entry into the oligopolistic market is difficult, entry barriers are very high. The control of individual companies over prices is limited. Examples of an oligopoly are the automotive market, cellular communication, household appliances, metals.

The peculiarity of an oligopoly is that the decisions of companies about the prices of a product and the volume of its supply are interdependent. The situation on the market strongly depends on how companies react when the price of products is changed by one of the market participants. Possible two kinds of reactions: 1) follow reaction- other oligopolists agree with the new price and set prices for their goods at the same level (follow the initiator of the price change); 2) reaction of ignoring- other oligopolists ignore price changes by the initiating firm and maintain the same price level for their products. Thus, an oligopoly market is characterized by a broken demand curve.

Features or oligopoly conditions:

• number of sellers in the industry: small;
• size of firms: large;
• number of buyers: large;
• goods: homogeneous or differentiated;
• price control: significant;
• access to market information: difficult;
• barriers to entry into the industry: high;
• competitive methods: non-price competition, very limited price competition.

Pure (absolute) monopoly

Pure monopoly market (English "monopoly") - characterized by the presence on the market of a single seller of a unique (having no close substitutes) product.

Absolute or pure monopoly is the exact opposite of perfect competition. A monopoly is a one-seller market. There is no competition. The monopolist has full market power: it sets and controls prices, decides how much goods to offer to the market. In a monopoly, the industry is essentially represented by just one firm. Barriers to market entry (both artificial and natural) are virtually insurmountable.

The legislation of many countries (including Russia) fights against monopolistic activity and unfair competition (collusion between firms in setting prices).

Pure monopoly, especially on a national scale, the phenomenon is very, very rare. Examples are small settlements(villages, towns, small towns), where there is only one shop, one owner of public transport, one Railway, one airport. Or a natural monopoly.

Special varieties or types of monopoly:

• natural monopoly- a product in an industry can be produced by one firm at a lower cost than if many firms were engaged in its production (example: public utilities);
• monopsony- there is only one buyer in the market (monopoly on the demand side);
• bilateral monopoly- one seller, one buyer;
• duopoly– there are two independent sellers in the industry (such a market model was first proposed by A.O. Kurno).

Features or monopoly conditions:

• number of sellers in the industry: one (or two, if we are talking about a duopoly);
• company size: various (usually large);
• the number of buyers: different (there can be both a multitude and a single buyer in the case of a bilateral monopoly);
• product: unique (has no substitutes);
• price control: full;
• access to market information: blocked;
• barriers to entry into the industry: virtually insurmountable;
• competitive methods: absent as unnecessary (the only thing is that the company can work on quality to maintain the image).

Galyautdinov R.R.

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