Characteristics of perfect competition
1. There are a large number of buyers and sellers, and manufacturers are the recipients of the market's established prices, not their setters;
2. The products are homogeneous: for buyers, they don’t care which company’s product it is;
3. Input factors flow freely, and manufacturers can enter and exit easily;
4. Sufficient information: Producers and consumers have complete market information.
Conditions for occurrence:
(1) There are many producers and consumers in the market.
(2) They are all just price receivers and have equal competitive status.
(3) The products provided by producers are homogeneous (undifferentiated).
(4) Free flow of resources.
(5) Market information is smooth.
(6) There are basically no entry and exit barriers for manufacturers, and manufacturers are completely free to join or exit the market.
Under such conditions, all companies face a horizontal or perfectly elastic demand curve. ,
The choice of enterprises under perfect competition conditions
In a perfectly competitive market, the demand curve of enterprises is a horizontal line, and the intercept of this horizontal line is the market equilibrium price P0, (on the market The equilibrium price determined when supply equals demand). At the same time, because in a perfectly competitive market, a company's average revenue and marginal revenue are equal to price, so this demand curve is also an average revenue curve and a marginal revenue curve.
The conditions for profit maximization under perfect competition: marginal revenue equals marginal cost.
For example: When a professional chicken farmer increases or decreases output to a certain level, the marginal cost and marginal profit of eggs are both 4 yuan. At this time, he will maintain this output level unchanged. , because the increase in total revenue provided by the last unit of eggs produced is exactly equal to the increase in total costs caused by this unit of eggs, it is obvious that he will be satisfied with this level of production, indicating that it has been achieved at this time Profit maximization.
What is a complete monopoly
A complete monopoly refers to a market structure in which there is only one producer in the entire industry.
That is, there is only one manufacturer of a certain product in the entire industry, so there is no pure competition.
Characteristics of a complete monopoly:
1. A line is an enterprise (the equilibrium of an enterprise is also the equilibrium of an industry)
2. Products cannot be substituted (1,000 monopoly enterprises If there are no very close substitutes for the products provided, the cross elasticity of demand is zero; the degree of monopoly power possessed by any company actually depends on how many substitutes exist and how similar these substitutes are.)
3 It is difficult for other companies to enter the industry
4 Companies decide their own prices (complete monopolies are not price takers, but price deciders.
In In real life, there is neither absolute perfect competition nor absolute monopoly. In a certain commodity market, if an individual enterprise can exclude competition from other enterprises, control the supply of the product, and then control the price of the commodity, it can be considered a complete monopoly. Industry.
Reasons for forming a complete monopoly:
1 Scale advantage, that is, certain products require large investments in fixed equipment, economies of scale are very significant, and large-scale production can greatly reduce costs.
2 Government legislation (for example: U.S. patent law allows inventors to have independent rights to manufacture certain goods or use certain special tools.)
3 Resource control: (such as: The Canadian International Nickel Company enjoys objective monopoly rights because it controls nearly 90% of the world's nickel deposits)
In addition, a similar monopoly situation will also occur due to geography, transportation and other reasons. /p>
Short-term equilibrium
Equilibrium is originally a concept in physics, which means that when an object is acted upon by two external forces of equal size and opposite direction at the same time, the object is in a relatively stationary state in the economy. In science, it refers to the equilibrium, relatively static and temporary stable state of various changing forces.
Short-term equilibrium: market supply is variable under the condition of unchanged technology;
Under perfect competition conditions, short-term production can be seen as a fixed number of enterprises in the market, and how these enterprises seek to maximize their profits at a given price.
Under a given production scale, the impact of price levels in different markets on the industry:
1. When the market price is high and the average revenue is greater than the average total cost, the company earns excess profits. For example: when the price of eggs on the market is higher than 5 yuan per catty, and the average cost of producing a catty of eggs for a professional chicken farmer is 2 yuan, his average profit is also 5 yuan per catty. According to the profit of marginal revenue equal to marginal cost Based on the maximization principle, assume that the optimal output he chooses is 500 kilograms. Because at this output, his marginal cost is exactly 5 yuan. Therefore, the short-term equilibrium price of his enterprise is 5 yuan, the short-term equilibrium output is 500 kilograms, and the excess profit he obtained = (5-2) * 500 = 1,500 yuan. At this time, if his output is greater than or less than 500 kilograms, his profit will be less than 1,500 yuan. Therefore, 1,500 is his maximum profit when the original price is 5.
2． When the market price is high and the average revenue is equal to the average total cost, the enterprise's economic profit is low and it can only obtain normal profits.
3. When the market price drops and the average revenue is less than the average total cost but still greater than the average total cost, the company loses money but can continue to produce.
4. When the market price continues to fall and average revenue equals average variable cost, the company's losses are at the critical point between production and non-production, that is, the point of stopping business. (If you continue to produce, all the income of the enterprise will not be all variable costs, but you will not have any fixed costs. If it does not produce, although it does not have to pay variable economic costs, fixed costs still exist. Therefore, on average Revenue equals average variable cost is the critical point between production and non-production.
5 When the price in the market drops to a lower level, the company's losses will be greater, and as a rational producer, he will stop. Production.
It can be seen from the above: the short-term equilibrium condition of a perfectly competitive industry is: marginal revenue = average revenue = price = short-term marginal cost.
In a completely monopoly market, a monopoly enterprise must To obtain maximum profits, we must also follow the principle that marginal revenue equals marginal cost. In the short term, since it is impossible to change the input of inconvenient factors, monopoly enterprises achieve maximum profits by simultaneously adjusting output and price within a given production scale. However, enterprises with a complete monopoly cannot do whatever they want. In the short term, the adjustment of output by enterprises is also limited by the inability to adjust production factors. The table shows a unified pricing table for all electricity users in a certain area by a power company:
Output (100 million kWh) Price (yuan) Total revenue (100 million yuan) Total cost (100 million yuan) Total profit (100 million yuan) Marginal revenue (yuan) Marginal cost (yuan)
10 1 10 6 4 0.9 0.8
20 0.9 18 13 5 0.8 0.7
30 0.8 24 17 7 0.7 0.6
40 0.7 28 19 9 0.6 0.5
50 0.6 30 20 10 0.5 0.5
60 0.5 30 22 8 0.31 0.4
70 0.4 28 23 5 0.2 0.3
80 0.3 24 25 -1 0.1 0.2
It can be seen from the above table
1 When the output is less than At 5 billion degrees, as the output increases, the price of tea products continues to decrease, but because the marginal revenue is greater than the marginal cost, the company's total profit continues to increase.
2 When the output is equal to 5 billion degrees, the marginal revenue continues to decrease. When the output is greater than 7 billion degrees, the total profit is negative, and there may be a loss. At this time, whether to produce or not depends on whether the concentration of business points will benefit. The variable total cost part of the total cost can be supplemented. If it is greater, it is beneficial for the enterprise to produce in the name of total revenue. In addition to supplementing the variable cost, there is also a part that can be used to supplement the fixed cost. If it is less, it should stop. Production. If equal to , the enterprise's stopping point is:
The short-term equilibrium condition of a monopoly is: marginal revenue = short-term marginal cost: Yes. It means that in a long-term production process, various production factors change with changes in demand, so the production volume does not adapt and sufficient adjustments are made. Of course, the production technology will also change.
Long-term equilibrium in a perfectly competitive market: In the long run, an enterprise's adjustment of production is reflected in two aspects: On the one hand, if its production suffers long-term losses, it may decide to exit the industry, or it may decide to exit the industry, or it may decide to exit the industry. It was profitable and decided to join the industry. On the other hand, enterprises can adjust the existing production scale according to operating conditions.
Although companies cannot change the market price, they can change the current output by controlling the amount of input, or even worse, decide whether to enter the industry or launch it. If the market supply is less than the demand, the market price will be determined by economic profits. In addition to new companies joining, the original companies will also expand their production. As a result, the supply of the product on the market increases and the market price gradually decreases. In either case, prices will gradually return to market equilibrium. In the long run, in a perfectly competitive market, enterprises can only be in a situation where income and expenditure are even, maximizing profits means that the economic profit is zero, and enterprises can only obtain normal profits. In short, the long-term equilibrium conditions of a perfectly competitive enterprise are: Marginal revenue = Average revenue = Price = Long-term average cost = Long-term marginal cost. The equilibrium point is the lowest point of long-term average cost. At this time, the economic profit of a single enterprise is zero.
A complete monopoly market is a long-term equilibrium: in the long run, a monopoly enterprise can maximize profits by adjusting output. At this time, the enterprise's equilibrium condition is: marginal revenue = long-term marginal cost = short-term marginal cost.
It should be noted that when a complete monopoly reaches long-term equilibrium, its production scale is not the optimal production scale, and is smaller than the optimal scale. That is to say, its average minimum cost is not the minimum cost at this time. . When the chicken-raising specialist we discussed earlier (a perfectly competitive enterprise) reaches long-term equilibrium, its production scale is the optimal scale, and the average cost is the lowest in the entire process.