Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-1
Imperfect competition
Perfect competition
Firms have no control over price. Firms produce homogenous products. Price equal the marginal cost of production. Long-run economic profits are not possible due to free entry and exit. An ideal market that maximises economic surplus. A situation that does not always exist.
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-2
Imperfect competition
Imperfectly competitive firms
Have some control over price. Price may be greater than the cost of production. Long-run economic profits are possible. Face a downward-sloping demand curve. Contribute to loss of efficiency. Are very common in every economy. Reduce economic surplus to varying degrees by restricting output.
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-3
Imperfect competition
Different forms of imperfect competition
Pure monopoly Oligopoly Monopolistic competition
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-4
Imperfect competition
Various forms of imperfect competition
Pure monopoly (most inefficient)
The only supplier of a unique product with no close substitutes, examples
City power provider Only petrol station in a small town AFL football league
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-5
Imperfect competition
Various forms of imperfect competition
Oligopoly (more efficient than a monopoly)
A firm that produces a product for which only a few rival firms produce close substitutes, examples
Major banks in Australia BP, Shell, Mobil Airlines
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-6
Imperfect competition
Different forms of imperfect competition
Monopolistic competition (closest to perfect competition)
A large number of firms that produce slightly differentiated products that are reasonably close substitutes for one another, examples
Restaurants in Lygon Street Novels, films, CDs
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-7
Imperfect competition
The essential difference between perfectly and imperfectly competitive firms comes from possible substitutability of products
The perfectly competitive firm faces a perfectly elastic demand for its product. The imperfectly competitive firm faces a downwardsloping demand curve.
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-8
Imperfect competition
In perfect competition
Supply and demand determine equilibrium price. The firm has no market power. At the equilibrium price, the firm sells all it wishes.
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-9
Imperfect competition
With perfect competition
If the firm raises its price, sales will be zero. If the firm lowers its price, sales will not increase. The firms demand curve is the horizontal line at the market price.
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-10
Imperfect competition
With imperfect competition
The firm has some control over price or some market power. The firm faces a downward-sloping demand curve. In the case of a monopoly, the firms demand curve is the market demand curve.
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-11
Market price
Price
D
Quantity Quantity
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-12
Government-created monopolies
A new pharmaceutical drug Taxi licenses
Network economies
Microsoft Windows
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-13
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-14
Total and average total costs for a production process with economies of scale
TC = F + MQ
Average cost ($/unit)
F + Q0
ATC = F/Q + M
Q0
Quantity
Quantity
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
Annual production Fixed cost Variable cost Total cost Average total cost per game
Observations Fixed costs are a relatively small share of total cost. Cost/game is nearly the same.
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-16
Total cost
Average total cost per game
$10,200 000
$10.20
$10,240 000
$8.53
Observations Fixed costs are a relatively large share of total cost. PlayStation has a $1.67 average cost advantage. PlayStation can lower prices, cover cost and attract customers.
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-17
Total cost
Average total cost per game
$10,100 000
$20.20
$10,340 000
$6.08
Shift of 500,000 units to PlayStation. Nintendos average cost increases to $20.20/unit. PlayStation average cost falls to $6.08. A large number of firms cannot survive when the cost differential is high.
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-18
1984 1990
20% 80%
80% 20%
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-19
As fixed costs become more important, the perfectly competitive pattern becomes less common.
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-20
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-21
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-22
If P = $6, then TR = $6 x 2 = $12 If P = $5, then TR = $5 x 3 = $15 The MR of selling the 3rd unit = $3 (15-12) For the 3rd unit, MR = $3 < P = $5
Price ($/unit)
6 5
3 Quantity (units/week)
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-23
P 6 5
Q 2 3
TR 12 15
MR 3 1 -1
4
3
4
5
16
15
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-24
P 6 5 4 3
Q 2 3 4 5
TR 12 15 16 15
MR 3 1 -1
3 1 -1 2 3 4 5
D
8
MR
Quantity (units/week)
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-25
The marginal revenue curve for a monopolist with a straight-line demand curve
a
Price
a/2 MR D
Q0/2
Quantity
Q0
Observations The vertical intercept, a, is the same for MR and D. The horizontal intercept for MR, Q0/2, is one half the demand intercept, Q0..
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-26
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-27
Marginal cost
Observations If P = $3 & Q = 12 MR < MC and output should be reduced. Profits are maximised at 8 units where MR = MC. The maximum single price at which 8 units can be sold is P=$4.
4
3
MR
8 12 Quantity (units/week)
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
D
24
10-28
0.12
Price ($/minute) Price ($/minute) 0.10
ATC
0.10 0.08
ATC
0.05
0.05
MC D
20
MC D
20
MR
MR
24
Minutes (millions/day)
Minutes (millions/day)
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-29
Marginal cost
D
12 Quantity (units/week)
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
24
10-30
Marginal cost
The profit maximising level of output of 8 units, where MR = MC, is less than the socially optimal output of 12. Between 8 and 12, MB to society > MC to society. Single-price monopolist will not increase output because MR<MC.
4
3
MR
8 12 Quantity (units/week)
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
D
24
10-31
Marginal cost
Because MR < P, the monopoly produces less than the socially optimal amount The deadweight loss of the monopoly to society = (1/2)($2/unit)(4units/wk) = $4/wk.
4
3
MR
8 12 Quantity (units/week)
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
D
24
10-32
Perfect competition
Profits are maximised where MR = MC P = MR P = MC No deadweight loss
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-33
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-34
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-35
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-36
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-37
A B C D E F G H
40 38 36 34 32 30 28 26
40
36 32 28 24 20 16 12
10-38
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-39
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-40
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-41
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-42
Example
Student
Reservation price
A B C D E F G H
40 38 36 34 32 30 28 26
10-43
Rosie would edit A to F TR = $40 + $38 = $210 TC = 6 x $29 = $174 Economic Profit = $210 $174 = $36/wk Economic profit is $30 more than when she had to charge a single price.
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-44
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-45
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-46
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-47
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-48
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-49
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-50
Assume
Rosie offers a mail in rebate coupon. Students with at least a $36 reservation price never use the coupon. Students with a reservation price below $36 use the coupon. Opportunity cost = $29. Discount coupon = $4.
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-51
A B C D E F G H
40 38 36 34 32 30 28 26
40 36 32 34 30 26 22 18
10-52
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
Question
Is price discrimination a desirable thing?
The hurdle method raised economic surplus.
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-53
Reservation price
Actual price
Consumer surplus
A B C
$4 $2 $0 $6
Without discount
D
With discount
$34
$22
$2
$8
Producer surplus
Single price = 3(36 - 29) = $21/wk Discount price = 3(36 - 29) = $21/wk 2(32 - 29) = $6/wk $27/wk
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-54
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-55
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-56
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-57
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-58
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-59
Thinking as an economist
How does the ACCC use cost-benefit thinking in applying the Acts authorisation and notification processes?
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-60
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-61
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-62
Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Principles of Microeconomics by Frank, Bernanke and Jennings Slides prepared by Nahid Khan
10-63