1、Chapter 8Managing in Competitive, Monopolistic, and Monopolistically Competitive MarketsMcGraw-Hill/IrwinCopyright 2014 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter OutlinePerfect competitionDemand at the market and firm levelsShort-run output decisionsLong-run decisionsMonopolyMon

2、opoly powerSources of monopoly powerMaximizing profitsImplications of entry barriersMonopolistic competitionConditions for monopolistic competitionProfit maximizationLong-run equilibriumImplications of product differentiationOptimal advertising decisions8-2Chapter OverviewIntroductionChapter 7 exami

3、ned the nature of industries, and saw that industries differ with respect to their structures, conducts and performances.This chapter focuses on how managers determine the optimal price, quantity and advertising decisions in the following market environments:Perfect competition.Monopoly.Monopolistic

4、 competition.8-3Chapter OverviewKey ConditionsPerfectly competitive markets are characterized by:The interaction between many buyers and sellers that are “small” relative to the market.Each firm in the market produces a homogeneous (identical) product.Buyers and sellers have perfect information.No t

5、ransaction costs.Free entry into and exit from the market.The implications of these conditions are:a single market price is determined by the interaction of demand and supplyfirms earn zero economic profits in the long run.8-4Perfect CompetitionDemand at the Market and Firm Levels In Action8-5Perfec

6、t CompetitionMarket output0PriceDPriceFirmsoutputSMarketFirmShort-Run Output DecisionsThe short run is a period of time over which some factors of production are fixed.To maximize short-run profits, managers must take as given the fixed inputs (and fixed costs), and determine how much output to prod

7、uce by changing the variable inputs.8-6Perfect CompetitionShort-Run Profit Maximization: Revenue-Cost Approach In Action8-7Perfect CompetitionFirms output$0ABEMaximum profitsCompetitive Firms Demand8-8Perfect CompetitionShort-Run Loss Minimization In Action8-9Perfect CompetitionFirms output$0ProfitC

8、ompetitive Output Rule8-10Perfect CompetitionCompetitive Output Rule In Action8-11Perfect CompetitionShort-Run Loss Minimization In Action8-12Perfect CompetitionFirms output$0 LossThe Shut-Down Case In Action8-13Perfect CompetitionFirms output$0Fixed CostLoss if produceLoss if shut downShort-Run Out

9、put Decision8-14Perfect CompetitionShort-Run Firm Supply Curve In Action8-15Perfect CompetitionFirms output$0Short-run supply curve for individual firmFirms Short-Run Supply Curve8-16Perfect CompetitionMarket Supply Curve In Action8-17Perfect CompetitionMarket outputP01$10$12Market supply curveIndiv

10、idual firms supply curve500SLong-Run Decisions: Entry and Exit In Action8-18Perfect CompetitionMarket output0PriceDPriceFirmsoutput0ExitEntryLong-Run Competitive Equilibrium In Action8-19Perfect CompetitionFirms output$0Long-run competitive equilibriumLong-Run Competitive Equilibrium8-20Perfect Comp

11、etitionMonopoly and Monopoly PowerA market structure in which a single firm serves an entire market for a good that has no close substitutes.Sole seller of a good in a market gives that firm greater market power than if it competed against other firms.Implication: market demand curve is the monopoli

12、sts demand curve.However, a monopolist does not have unlimited market power.8-21MonopolyMonopolists Demand In Action8-22MonopolyOutputPrice0ABMonopolists power is constrained by the demand curve.Sources of Monopoly PowerEconomies of scaleEconomies of scopeCost complementarityPatents and other legal

13、barriers8-23MonopolyElasticity of Demand and Total Revenues In Action8-24MonopolyQ0RevenuePriceFirmsoutput0UnitaryUnitaryElasticInelasticInelasticElasticMRMarginal Revenue and Elasticity8-25MonopolyMarginal Revenue and Linear Demand8-26MonopolyMarginal Revenue In Action8-27MonopolyOutput Rule8-28Mon

14、opolyCosts, Revenues, and Profit In Action8-29MonopolyOutput$0Maximum profitPriceQuantityDemandMRMCATCProfitsProfit Maximization In ActionMonopoly8-30Pricing Rule8-31MonopolyMonopoly In Action8-32MonopolyAbsence of a Supply Curve8-33MonopolyMultiplant Decisions8-34MonopolyMultiplant Output Rule8-35M

15、onopolyImplications of Entry BarriersA monopolist may earn positive economic profits, which in the presence of barriers to entry prevents other firms from entering the market to reap a portion of those profits.Implication: monopoly profits will continue over time provided the monopoly maintains its

16、market power.Monopoly power, however, does not guarantee positive profits.8-36MonopolyPriceQuantityDemandMRMCATCZero-Profit Monopolist In ActionMonopoly8-37Deadweight Loss of MonopolyThe consumer and producer surplus that is lost due to the monopolist charging a price in excess of marginal cost.8-38

17、MonopolyPriceQuantityDemandMRMCDeadweight Loss of Monopolist In ActionMonopoly8-39Deadweight lossKey ConditionsAn industry is monopolistically competitive if:There are many buyers and sellers.Each firm in the industry produces a differentiated product.There is free entry into and exit from the indus

18、try.A key difference between monopolistically competitive and perfectly competitive markets is that each firm produces a slightly differentiated product.Implication: products are close, but not perfect, substitutes; therefore, firms demand curve is downward sloping under monopolistic competition.8-4

19、0Monopolistic CompetitionPriceQuantityDemandMRMCATCProfit-Maximizing Monopolistically Competitive Firm In ActionMonopolistic Competition8-41ProfitsProfit-Maximization Rule8-42Monopolistic CompetitionLong-Run EquilibriumIf firms in monopolistically competitive markets earn short-run profits, addition

20、al firms will enter in the long run to capture some of those profits.losses, some firms will exit the industry in the long run.8-43Monopolistic CompetitionPriceQuantity of Brand XDemand0MR0MCATCEntry in Monopolistically Competitive Market In ActionMonopolistic Competition8-44Demand1MR1Due to entry of new firms selling other brandsPriceQuantity of Brand XMCATCLo