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The Competitive Environment

The Competitive Environment. What is a Model?. http://www.break.com/index/transformation_of_a_model.html. Market Models. Perfect Competition. Perfect Competition. Firms are price takers. Perfect Competition. Firms are price takers Many small firms. Perfect Competition.

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The Competitive Environment

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  1. The Competitive Environment

  2. What is a Model?

  3. http://www.break.com/index/transformation_of_a_model.html

  4. Market Models

  5. PerfectCompetition

  6. PerfectCompetition Firms are price takers

  7. PerfectCompetition Firms are price takers Many small firms

  8. PerfectCompetition Firms are price takers Many small firms Homogeneous product

  9. PerfectCompetition Firms are price takers Many small firms Homogeneous product Easy entry and exit

  10. PerfectCompetition Firms are price takers Many small firms Homogeneous product Easy entry and exit Attempt to maximize profits by changing output

  11. price • market s d quantity

  12. price price market individual s d quantity quantity

  13. dD price P quantity

  14. prdD profit maximization Change in Cost Change in Quantity price mc P mr Change in Revenue Change in Quantity quantity

  15. $62 $64

  16. prdD profit maximization price mc P mr quantity

  17. Similar to atomistic competition Monopolistic Competition

  18. Similar to atomistic competition BUT - produce a somewhat differentiated product Monopolistic Competition

  19. Similar to atomistic competition BUT - produce a somewhat differentiated product The demand curve for the product they sell is somewhat inelastic

  20. price demand quantity

  21. Advertise and promote price demand quantity

  22. A market that may contain a relatively small number of producers Oligopoly

  23. A market that may contain a relatively small number of producers Some have a homogeneous product Oligopoly

  24. A market that may contain a relatively small number of producers Some have a homogeneous product Others have a differentiated product Oligopoly

  25. http://www.youtube.com/watch?v=0JDoQb6A2YI&mode=related&search=http://www.youtube.com/watch?v=0JDoQb6A2YI&mode=related&search=

  26. TWO GAS STATIONSMOBILBPACROSS THE STREET FROM EACH OTHER

  27. MOBIL CHARGES $2.89/GALAND SELL 1000 GALLONS PER DAYTOTAL REVENUE = $2890/DAY BP CHARGES $2.89/GALAND SELL 1000 GALLONS PER DAYTOTAL REVENUE = $2890/DAY

  28. THE MOBIL STATION DECIDES TO COMPETE BY LOWERING THE PRICE OF REGULAR GAS TO $2.59/GAL

  29. EVERYONE GOES TO THE MOBIL STATIONMOBIL SELLS 2000 GALLONS OF GAS AT $2.59/GAL AND HAS TOTAL REVENUE OF $5,150/DAYEND OF STORY?

  30. BP WILL RESPOND AND LIKELY MATCH THE MOBIL PRICE OF $2.59/BUBP WILL REGAIN ITS MARKET SHARE OF 1000 GALLONS PER DAYMOBIL WILL GO BACK TO ITS 1000 GALLONS PER DAY

  31. BUT AT $2.59/GAL TOTAL REVENUE IS ONLY $2,590/DAYFOR EACH STATION

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