The long run assumes that the firm can respond to changing situations different ways: increasing or decreasing the used production capacities; the number of firms operating in the market may change. Our task is to determine how the situation in the industry will change in the event of a change market demand. The purpose of our analysis is to determine the level of long-term market equilibrium. To simplify the analysis, we make some assumptions:

Let's limit possible changes in the market to only one factor - a change in the number of firms;

All firms have the same size and cost structure, i.e. and the firms themselves are exactly the same in size;

The value of production costs does not change, i.e. the price at which the firm attracts economic resources remains unchanged in the long run.

Temporary gains and losses and rebalancing of a typical firm and industry over the long run.

If we assume a situation where the price prevailing in the market turns out to be greater than the average total production costs of an individual firm, then economic profit (surplus profit) will arise in the industry, which will attract new firms to the industry. The expansion of the industry (i.e., the entry of new firms into it, attracted by the presence of profits) will increase the supply of products. An increase in the number of firms operating in the market is a non-price determinant of supply, the action of which leads to a shift in the industry supply schedule to the right. It is clear that the expansion of supply will be accompanied by a decrease in the industry price. Industry expansion will increase the supply of the industry's product until the price drops to the level of average total cost. For the firm, this would mean operating at a break-even point and making only normal profits.

In the event of an unfavorable price reduction in the industry, losses arise, which, like the profit in the previous case, will also be of a temporary nature. So, if in the short run every producer in the industry faces economic losses, then a massive outflow of firms will begin, and, therefore, equilibrium is restored by reducing the volume of industry supply from Q 1 to Q 8 and reducing the number of firms in the market.

So, market competition, which manifests itself in the free entry and exit of firms from the industry, eventually equalizes the price from the minimums of average gross costs, and each firm will operate at point A 1, where MR=MC=minATC. To produce above the min ATC point means to receive economic profits, which will be reduced to zero in the long run due to the influx of new firms. To produce below the min ATC point means to have economic losses, the presence of which will lead to a narrowing of the industry due to the outflow of firms in the long run. The reduction in supply will push the market price up, the new equilibrium situation will be characterized by the initial value of the industry price. For every firm in the industry, this would mean producing at the break-even point.

From the above analysis gjyznyj, that the price of products manufactured in conditions of perfect competition is set in the long run at the level of the minimum average gross costs (min ATS).

Topic 12: PERFECT COMPETITION

1. Pure monopoly and its specific traits. Barriers to entry into the industry. Types of monopolies

The opposite of perfect competition is a pure monopoly - a market in which only one firm operates, which, due to this circumstance, is able to influence the market equilibrium and market price. Monopoly is the most striking manifestation of imperfect competition. A monopoly is a market structure that meets the following conditions:

1. The release of goods by the entire industry is controlled by one seller of this product, which is called a monopolist, i.e. the monopoly firm is the sole producer of a given good and represents the entire industry.

2. The product produced by the monopolist is special in its kind (unique) and has no close substitutes, in this regard, the demand for the monopolist's product has a low degree of price elasticity, and the schedule for it has a sharply "falling" character. In addition, the demand for this product changes insignificantly when the prices of goods in other sectors change, and therefore the cross elasticity of demand for a monopoly product and products of other sectors of the economy is very low.

3. The monopoly is completely closed to the entry of new firms into the industry, therefore, in a monopoly there is no competition.

These conditions allow us to conclude that a monopoly firm is able to independently change the price of the goods sold in any direction within certain limits (as opposed to perfect competition, where each individual firm is only forced to “agree” with the price).

As an example of a pure monopoly, public utilities and utilities - enterprises of gas, electricity, water supply and some others are usually considered. These companies are called natural monopolies. natural monopoly - an industry in which an industry product can be produced by one firm at a lower cost than if it were produced not by one, but by several firms, i.e. when there is competition in the industry. The state usually grants exclusive privileges to natural monopolies. At the same time, the government retains the right to regulate the activities of such enterprises, preventing their abuse of monopoly power. Also, large corporations that completely dominate the industry can be classified as monopolies.

The emergence and existence of pure monopolies is usually explained by the presence of barriers to entry into the industry. The factors contributing to the formation of such barriers give rise to monopoly power in the markets in question. All barriers can be divided into two groups - natural and artificially created barriers.

Among natural barriers the following can be distinguished:

1. Economic - individual firms through continuous improvement technological processes can achieve the lowest output costs by producing a very large volume of output (positive economies of scale). This leads to the fact that only one or a few large firms can have low production costs per unit of output. The remaining firms are forced out of the industry, and a natural monopoly arises. Natural barriers also arise when the domestic market of a country is relatively small, and only large enterprises are economically efficient in this industry, so one firm covers almost the entire industry.

2. Technological barriers are associated with the existence of local utilities. The current level of technology and technology makes competition here very difficult or simply impossible. For example, it makes no sense for competition to run several water pipes to each house.

3. Financial barriers - monopolized industries usually have a significant output, so a new firm to enter the industry needs to make large investments, train qualified personnel, etc., which is associated with significant costs and blocks entry into the industry.

4. Ownership of certain types of resources. A firm that owns or controls the raw materials needed in the production of a given material good can prevent the emergence of competing firms in the market for this good, in which it itself usually acts as a monopolist.

TO artificial barriers can be attributed:

1. Legal barriers - guaranteeing patent rights for inventions, granting special privileges in the form of licenses for the production and sale of products, ensuring the secrecy of some individual developments by the government can lead to the concentration in the hands of one firm of the bulk of patents and licenses for goods produced in the industry.

2. Methods of unfair competition - such an organization of competition in which business entities resort to illegal methods of influencing competitors: wide anti-advertising, creating a negative image of the industry, and firms do not aspire to it; spreading false information about a competitor; the use of a system of dumping prices, when in order to ruin a competitor or force him out of the market for a short time, a price is set below the average cost; criminal and other methods.

The long-term period suggests that the firm can respond to changing situations in different ways: by increasing or decreasing the used production capacity; the number of firms operating in the market may change. Our task is to determine how the situation in the industry will change in the event of a change in market demand. The purpose of the analysis is to determine the level of long-term market equilibrium. To simplify the analysis, we make some assumptions:

Let us limit possible changes in the market to only one factor - a change in the number of firms;

All firms have the same size and cost structure, that is, the firms themselves are exactly the same in size;

The value of production costs does not change, i.e. the price at which the firm attracts economic resources remains unchanged in the long run.

Temporary gains and losses and rebalancing of a typical firm and industry over the long run. Suppose that the situation on the market looks like it is shown in figure a, i.e. it is characterized by supply and demand graphs D 1 and S 1 . Point E 1 reflects the equilibrium parameters of the sectoral market - the equilibrium price (Р 1) and the equilibrium volume of production (Q 1). For simplicity of analysis, we will assume that with such a position on the market, the situation for each individual firm in the industry will be characterized by point A 1 , at which, at a price P 1, three graphs intersect - marginal revenue (MR), marginal cost (MC) and average gross costs (ATS). The optimal output of an individual firm will be Q 2 units of output (Figure b).

If, under the influence of non-price determinants of demand, the curve D 1 has shifted to position D 2, then the equilibrium passes from point E 1 to point E 2, and a new equilibrium price P 2 is established. For the firm, this would mean shifting the marginal revenue schedule up to MR 2 . The equilibrium situation for the firm will now be characterized, based on the rule MR = MC, by the point A 2 , which corresponds to the volume of production Q 4 . For the firm, this will mean that the new price P 2 exceeds the average gross costs, corresponding to the volume of output Q 4 . In other words, every firm in the industry will earn an economic profit. This will attract new firms into the industry, whose influx will increase the market supply from S 1 to S 2 . Moreover, the supply will increase until the market price reaches the initial level - P 1. It is then that the influx of new firms into this market will stop. Further expansion of the industry will no longer make sense, since the growing supply will reduce the market price below the level P 1 . And this means losses for each individual producer. Thus, the economic profits that have arisen in the short run will be reduced to zero, and the long-term equilibrium will be restored at the previous price level, but with a larger industry supply. An increase in the number of firms operating in the industry will lead to an increase in the volume of industry supply from Q 1 to Q 5 . The reverse situation is also possible (see figure).

In the event of an unfavorable price reduction in the industry, losses arise, which, like the profit in the previous case, will also be of a temporary nature. Consequently, if in the short run every producer in the industry faces economic losses, then a massive outflow of firms will begin, and equilibrium is restored by reducing the volume of industry supply from Q l to Q 8 and reducing the number of firms in the market.

Thus, market competition, which manifests itself in the free entry and exit of firms from the industry, eventually equalizes the price from the minimums of average gross costs, and each firm will operate at point A 1, where MR = = MC = min ATC (precisely at the point minimum ATC intersect charts MC and ATC). To produce above the min ATC point means to receive economic profit, which will be reduced to zero in the long run due to the influx of new firms. To produce below the point min A TC means to have economic losses, the presence of which will lead to a narrowing of the industry due to the outflow of firms in the long run. The reduction in supply will push the market price up, the new equilibrium situation will be characterized by the initial value of the industry price. For every firm in the industry, this would mean producing at breakeven and making only normal profits.

Perfect Competition. The offer is completely competitive firm and industries

Free competition means that, firstly, there are many independent firms on the market that independently decide what and how much to produce. Secondly, access to the market is not limited to anyone and nothing, and exit from it is also free. This implies the opportunity for every citizen to become a free entrepreneur and apply his labor and material resources in the sector of the economy that interests him. Buyers must be free from any discrimination and be able to buy goods and services in any market. Thirdly, products for a specific purpose are the same in terms of the most important properties. Fourth, firms have no part in controlling market prices.

Perfect Competition is a market structure in which many firms sell a standardized product and no single firm has a large enough market share to influence its price.

Continuous confrontation acts as a force that directs the activities of all agents of the market. Competition as a market regulator naturally affects three phenomena: a) changes in prices of buyers and sellers; b) an unstable ratio of supply and demand associated with areas of excess and lack of goods; c) the deviation of the market price from the equilibrium point.

The law of competition has a stronger effect on the behavior of market participants than the laws of supply and demand. Free competition, as it were, forces excessively high and very low prices to move towards the equilibrium point. This centripetal motion leads, ultimately, to the equality of the opposing sides. The direct involvement of market competitiveness in the formation of an equilibrium price and an equilibrium quantity of goods dictates competitive game rules(behavior).

7.3. Monopoly: place and role in the market

Monopoly - this is the exclusive right of the state, enterprise, organization, trader to carry out any economic activity. This means that, by its nature, a monopoly is the direct opposite of free competition.

The “pure monopoly” market model is characterized by the presence of only one firm producing a product for which there are no close substitutes, i.e. a unique product, the firm exercises significant control over the price of its product. By adjusting the price by changing the supply of the product, the firm does everything to prevent a new firm from entering the industry of its activity, i.e., blocks its industry. Commercial advertising of the product is almost non-existent.

A situation in which there are many sellers in the market and only one buyer of a product is called monopsony (i.e. monopoly of one buyer)

V different countries in different periods in the economy there are different kinds monopolies. This type of market structure can be classified according to the degree of coverage of the economy, the nature and causes of occurrence.

The rules of behavior of monopolistic associations in the market differ from those inherent in free competition by a fundamentally different approach to pricing. Monopolists conquer the market in order to collect a kind of tribute from economic entities dependent on them with the help of the prices they set. Thus, they receive much higher incomes compared to the average level established in the national economy.

Unlike participants in a competitive market, monopoly firms themselves and at their own discretion set the market price for their products.

There are four rules for setting a monopoly price.

First rule. Firm installs monopoly high price on their products in excess of the social value or the possible equilibrium price. This is achieved by the fact that monopolists deliberately create a deficit zone, reducing production and artificially creating increased consumer demand.

Second rule. Monopsony sets exclusive low prices for purchased goods. The price reduction compared to the social value or the possible equilibrium price is achieved by artificial creation surplus areas. In this case, the monopsony deliberately reduces the purchase of goods, due to which their supply exceeds the monopolistic demand.

The demand for the products of an individual competitive firm whose sales volume has no effect on the change in the market price reflects a demand line that has horizontal view, or a perfectly elastic demand line. It shows that a firm will sell any number of goods and services at the same price (P), which is determined by the general industry supply and demand.

Third rule A firm that is both a monopoly and a monopsony doubles the tribute it collects through so-called price scissors. We are talking about monopoly high and monopoly low prices, whose levels move away from each other like diverging scissor blades. This behavior is typical for many manufacturing enterprises, which, in the face of inflation, raise prices for finished goods several times more than the increase in prices in the extractive industries.

7.4 Perfect Competition and Efficiency

7.1. Perfect competition: signs and distribution. Demand for a competitive seller's product

In any market, any of its subjects acts in accordance with the rules of this market

There are two main types of competition - perfect and imperfect. Perfect competition is the market in which a large number of firms that produce approximately the same goods and sell them at approximately the same price. In turn, the market of imperfect competition includes several options in which competition is limited by one or another factor: under a monopoly, there is only one large producer selling his goods at relatively high prices, while entering and exiting the market is practically impossible; under an oligopoly, there are several relatively large producers who often collude, which is why entry barriers are quite high, etc.

Perfect competition (not ideally, of course) prevails in most markets, and is the most desirable for the state, seeking to ensure market principles of doing business, and interfere less in the activities of firms, as is necessary with imperfect competition, especially for monopoly.

All this makes it necessary to study the market of perfect competition and the behavior of firms in it. Thus, the purpose of this term paper: the study of the behavior of a firm in conditions of perfect competition

The main features of the market structure of perfect competition in the general view have been described above. Let's take a closer look at these characteristics.

1. The presence on the market of a significant number of sellers and buyers of this good. This means that no seller or buyer in such a market is able to influence the market equilibrium, which indicates that none of them has market power. The subjects of the market here are completely subordinated to the market element.

2. Trade is carried out in a standardized product (for example, wheat, corn). This means that the product sold in the industry by different firms is so homogeneous that consumers have no reason to prefer the products of one firm to those of another manufacturer.

3. The inability for one firm to influence the market price, since there are many firms in the industry, and they produce a standardized product. In conditions of perfect competition, each individual seller is forced to accept the price dictated by the market.

4. Absence non-price competition, which is associated with the homogeneous nature of the products sold.

5. Buyers are well informed about prices; if one of the producers raises the price of their products, they will lose buyers.

6. Sellers are unable to collude on prices due to large quantity firms in this market.

7. Free entry and exit from the industry, i.e., there are no entry barriers blocking entry into this market. In a perfectly competitive market, there is no difficulty in starting a new firm, and there is no problem if an individual firm decides to leave the industry (since firms are small, there is always an opportunity to sell a business).

Markets for certain types of agricultural products can be named as an example of perfect competition markets.

In practice, no existing market is likely to meet all the criteria for perfect competition listed here. Even markets very similar to Perfect Competition can only partially meet these requirements. In other words, perfect competition refers to ideal market structures that are extremely rare in reality. Nevertheless, it makes sense to study the theoretical concept of perfect competition for the following reasons. This concept allows us to judge the principles of functioning of small firms that exist in conditions close to perfect competition. This concept, based on generalizations and simplification of analysis, allows us to understand the logic of the behavior of firms.

Examples of perfect competition (of course, with some reservations) can be found in Russian practice. Small market vendors, tailors, photo shops, car repair shops, construction crews, apartment renovation specialists, peasants at food markets, stall retail can be regarded as the smallest firms. All of them are united by the approximate similarity of the products offered, the insignificant scale of the business in terms of market size, the large number of competitors, the need to accept the prevailing price, that is, many conditions for perfect competition. In the sphere of small business in Russia, a situation very close to perfect competition is reproduced quite often.

main feature perfect competition market - the lack of price control by an individual producer, i.e., each firm is forced to focus on the price set as a result of the interaction of market demand and market supply. This means that the output of each firm is so small compared to the output of the entire industry that changes in the quantity sold by an individual firm do not affect the price of the good. In other words, a competitive firm will sell its product at a price already existing in the market. As a consequence of this situation, the demand curve for the product of an individual firm will be a line parallel to the x-axis (perfectly elastic demand). Graphically, this is shown in the figure.

Since an individual producer is unable to influence the market price, he is forced to sell his products at the price set by the market, i.e., at P 0 .

A perfectly elastic demand for a competitive seller's product does not mean that a firm can increase output indefinitely at the same price. The price will be constant insofar as the usual changes in the output of an individual firm are negligible compared with the output of the entire industry.

For further analysis, it is necessary to find out what will be the dynamics of the gross and marginal income (TR and MR) of a competitive firm depending on the volume of production (Q), if the firm sells any volume of manufactured products at a single price, i.e. P x = const . In this case, the TR (TR = PQ) graph will be represented by a straight line, the slope of which depends on the price of the products sold (P X): the higher the price, the steeper the graph will have. In addition, a competitive firm will face a graph of marginal revenue that is parallel to the x-axis and coincides with the demand curve for its products, since for any value of Q x, the value of marginal revenue (MR) will be equal to the price of the product (P x). In other words, a competitive firm has MR = P x. This identity takes place only under conditions of perfect competition.

The marginal revenue curve of a perfectly competitive firm is parallel to the x-axis and coincides with the demand curve for its product.

Similar information.

Supply in a perfectly competitive industry

A perfectly competitive firm accepts the price at which it can sell its product as given. It acts as a "price taker" as opposed to imperfectly competitive firms which are "price takers".

For a market to be perfectly competitive, the following conditions must be met: the presence of many sellers, each of which is small relative to the market as a whole; product uniformity; well-informed buyers; free entry and exit from the market and independent decisions on the part of both producers and consumers. Some industries, especially in agriculture satisfy these requirements, but the competition model is useful even when these requirements are only approximately met.

A perfectly competitive firm, if it produces anything at all, maximizes its profit by having an optimal positive output at which the revenue from the sale of each additional unit (i.e., its market price) equals its marginal cost. This is true for both short term (P=MC) and long term (P=MC) periods.

In the short term fixed costs have no effect on supply. A competitive firm, producing a product, maximizes profit only if the price is at least not lower than the average variable costs(P≥AVC). Otherwise, the firm can reduce its losses by temporarily stopping production.

A perfectly competitive firm's short-run supply curve coincides with the part of its marginal cost curve above its exit price, which corresponds to the minimum average variable cost.

The short-run market supply curve is obtained by adding (horizontally) the supply curves of all firms in a given market. At each price, the total quantity supplied is the sum of the quantities supplied by all firms.

In the long run, all factors of production are variable and all costs must be recovered. A perfectly competitive firm produces in the long run only if the price is at least as good as long run average cost (P≥LAC). In against

Otherwise, the firm exits the industry.

A perfectly competitive firm's long-run supply curve coincides with the portion of its long-run marginal cost curve above its long-run exit price, which corresponds to the minimum long-run average cost.

The industry's long-run supply curve is flatter than its short-run supply curve, both because each firm's long-run supply curve is flatter than its short-run supply curve, and because firms can enter and exit the market in the long run.

If all firms use identical technologies and can purchase factors of production at prices independent of industry output, then in the long run they will all have the same average and marginal cost curves.

In the short run, the industry's supply curve shifts mainly due to changes in the prices of variable factors. In the long run, shifts in the supply curve are driven by changes in the prices of all factors and changes in technology.

In both the short run and the long run, the supply curve of a perfectly competitive industry is the industry's marginal cost curve.