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- 1. Market Definition:- The term market refers notnecessarily to a place but always to acommodity & buyers & sellers, who are indirect competition with other. Example:- canaught place Delhi, ParadeKanpur, etc.
2. FORMS OF MARKETPERFECT MONOPOLISTIC MONOPOLYOLIGOPOLYCOMPETITION COMPETITION 3. PERFECT COMPETITION Perfect competition is a market situation, wherethere are large number of buyers & sellers. Thesellers sell identical product at a single uniformprice. Example:-Hypermarket(Giant, Carrefour, Tesco). Features:- 1. large no. of buyers & sellers. 2. Homogeneous Product 3. Uniform Price 4. Freedom of entry or exit of firms. 5. Perfectly Elastic Demand. 4. Price & Output Determination Under perfect competitionShort Run Equilibrium1. Super normal profit2. Losses3. Normal profitLong Run EquilibriumNormal Profit Only 5. Short Run Equilibrium1. Supernormal profits economic profits (P > ATC) or (TR > TC) P=MR=AR2. Normal profits Breakeven or zero profit (P = ATC) or (TR = TC) P=MR=AR3. Subnormal profits Economic losses (P < ATC) or (TR < TC) P=MR=AR continue the production if (ATC > P > AVC) Shut down the operation if (ATC > P < AVC) 6 6. Supernormal Profit (Economic Profit) Definition Profit earned by a competitive firm when its totalrevenue is more than total cost (TR>TC) or price isgreater than ATC (P>ATC). Calculation:TR = 5 x 9 = 45TC = 3 x 9 = 27 = (TR TC) = (45 27) = 18 7 7. Supernormal Profit/ Economic ProfitEconomic Profit MC Cost and RevenueRM5 MR=AR=P ATC RM3Minimum point of ATC 8 1 2 3 4 5 6 7 8 9 10 8. Breakeven/ Normal Profit Definition When total revenue is equal to total cost (TR=TC) orprice equal to ATC (P=ATC), there are no profit or nolosses. Firm has only able to cover its costs. Calculation:TR = 5 x 9 = 45TC = 5 x 9 = 459 = (TR TC) = (45 45) = 0 9. Breakeven/ Normal Profit Minimum point of ATCMC ATCCost and Revenue RM5MR=AR10 1 2 3 4 5 6 7 8 9 10 10. Economic losses/Subnormal profit Definition Losses incurred by a competitive firm when total revenue is less than total cost (TR < TC) or when the equilibrium price falls below ATC (P < ATC. The firm incurs losses because would not able to cover its costs. Calculation:TR = 5 x 6 = 30TC = 7 x 6 = 42 = (TR TC) = (30 42) = -12 11. Economic losses/ Subnormal profitEconomic LossMCCost and RevenueATC RM7 RM5MR=AR12 1 2 3 4 5 6 7 8 9 10 12. long Run EquilibriumNormal profits only Breakeven or zero profit (P = ATC) or (TR = TC) 13. Breakeven/ Normal ProfitMinimum point of ATC MCATC Cost and RevenueRM5MR=AR 141 2 3 4 5 6 7 8 9 10 14. MONOPOLY Monopoly is a market situation where there is only asingle seller with complete control over an industry. Features of monopoly Single seller Price discrimination No close substitutes Unique product Entry is restricted Price maker 15. Price & Output Determination Under Monopoly Short Run Equilibrium:- Super Normal Profit Losses Long Run Abnormal profit only 16. Short Run Equilibrium1. Supernormal profits economic profits MC= MR & AR> ATC2. Normal profits Breakeven or zero profit (MR=MC) or (AR=ATC)3. Subnormal profits Economic losses (MC=MR) or (AR=ATC) Notes:- MC curve must cutmr curve from below 17 17. A Monopolist Making a Profit PriceMCATC PMA Profit CM E MRD0 QM Quantity 18. A Monopolist Breaking Even Price MCATCEMRD0 Quantity 19. A Monopolist Making a Loss PriceMC ATC CMB LossA PM E MRD0 QM Quantity 20. long Run EquilibriumBreakeven/ Normal ProfitPrice MC ATCPME D MR0QM Quantity 21. Price discrimination Price discrimination is a method of pricingadopted by the monopolist in order to earnabnormal profit. It refers to the practices ofcharging different prices for the different pricesfor the different unit of the same commodity. Examples:- The family doctor in yourneighborhood charges a higher fees from a richpatient compared to the fees charged from apoor patient even though both are suffering fromviral fever. 22. Monopolistic competition is a market situationwhere there are many sellers of a particularproduct, but the product of each sellers is in someway differentiated in the minds of consumers fromthe product of every seller. Example:- Soap(Lux ,Rexona , Cinthol , Medimix).Features:- 1. Large no. of sellers.2. Product Differentiation.3. Free Entry & Exit of Firms.4. Nature of Demand curve. 23. Price & Output Determination Under Monopolistic competition Short Run Equilibrium:- Super Normal Profit Losses Long Run Abnormal profit only 24. Short Run Equilibrium1. Supernormal profits economic profits MC= MR & AR> ATC2. Normal profits Breakeven or zero profit (MR=MC) or (AR=ATC)3. Subnormal profits Economic losses (MC=MR) or (AR=ATC)25 25. A firm Making a ProfitPriceMC ATCPMAProfitCMBMRD 0 QM Quantity 26. A firm Breaking EvenPrice MC ATC MRD 0 Quantity 27. A firm Making a LossPriceMC ATCCMBLossAPMMRD 0 QM Quantity 28. A firm is making a Profit PriceMCATC PMA Profit CMB MRD0 QM Quantity 29. Oligopoly Oligopoly is a situation where a few large firmscompete against each other 7 there is an element ofinterdependence in the decision making of thesefirms. Example:- Cold drink Industries & automobileindustries. Features:- 1. interdependence 2. importance of selling & advertisingcost. 3. Presence of monopoly element. 4. kinked demand curve 5.Small no. of large sellers. 30. TYPES of OLIGOPOLY 1. Pure Oligopoly:- When a product dealt ishomogeneous in nature. Ex:- Aluminum industry 2. Differentiated Oligopoly:- It is based on productdifferentiation. Ex:- Talcum Powder. 3. collusive & Competitive oligopoly:- When fewfirms of the oligopolistic market come to a commonunderstanding or act in collusion with each other infixing price & output, it is collusive oligopoly. Whenthere is a lack of understanding between the firms& they compete with each other it is calledcompetitive oligopoly. 31. Continue 4. Partial or full Oligopoly:- oligopoly is partial whenthe industry is dominated by one large firm which isconsidered or looked upon as the leader of the group.The dominating firm will be the price leader. In fulloligopoly, the market will be conspicuous by theabsence of price leadership. 5. syndicated & organized oligopoly:- syndicatedoligopoly refers to that situation where the firms selltheir products through a centralize syndicate.Organized oligopoly refers to the situation where thefirms organize themselves into a central association forfixing prices, output, quotas, etc. 32. KINKED DEMAND CURVE Increase price = elastic Decrease price = inelasticcurve Theory Oligopoly If an oligopolistic lowers hisprice below the prevailinglevel its competitors willfollow him & accordinglylower prices, whereas if heraises the price above theprevailing level, itscompetitors will not followits increase in price .