Topic: Firms in Competitive Markets
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Topic: Firms in Competitive Markets Plan:
Competitive structure of the market. Market structure analysis . The model of perfect competition and its characteristics. Long-run and short-run equilibrium of a competitive market. 5. Price , average and marginal revenue in a competitive market. Profitability concept, types and calculation. Characteristics of competitive markets: Number of buyers and sellers Competitive markets, sometimes called perfectly competitive markets or perfectly competitive markets, have 3 distinct characteristics. The first characteristic is that the competitive market consists of a large number of buyers and sellers, which are small compared to the market size. The exact number of buyers and sellers required for a competitive market is undefined, but a competitive market has enough buyers and sellers that none of the buyers and sellers can significantly affect market dynamics. Basically, think of competitive markets as consisting of small buyers and sellers of small fish in a relatively large pond. Characteristics of competitive markets: Homogeneous product A second characteristic of competitive markets is that sellers in these markets offer the same or similar products on average. In other words, in competitive markets, there is not much difference between product selection, brands, etc., and consumers in these markets, all products available in the market, at least close to each other, . This feature is explained by the fact that in the graph above all sellers are labeled as "seller" and there is no specification of "seller 1", "seller 2" and so on. Characteristics of competitive markets: Barriers to entry A third and final characteristic of competitive markets is that firms can freely enter and exit the market. In competitive markets, there are no barriers to entry, natural or artificial, because a company is not allowed to do business in the market if it wants to. Similarly, in competitive markets there are no restrictions on firms leaving an industry if it is not profitable or otherwise profitable to do business there. The first two characteristics of competitive markets—multiple buyers and sellers and undifferentiated products—mean that no individual buyer or seller has significant power over the market price. For example, if a sole trader exhibits a high bid, as shown above, this increase may appear substantial from the perspective of the individual firm, but the increase is much less from the perspective of the overall market. This is because public markets are on a much larger scale than individual firms, and shifts in the market curve that cause one side are almost imperceptible. In other words, the curve of the traffic light is so close to the original supply current that it is hard to tell if it has even moved. Since changes in supply are almost imperceptible from a market perspective, an increase in supply does not significantly reduce market value. It should also be noted that the same conclusion would be reached if the individual producer decided to decrease rather than increase his supply 1. Competitive structure of the market. There are two different definitions of the word "competition" in scientific language. The first is competition, which describes the market structure, i.e. competitive market, perfect competition, monopolistic competition. The second is competition that characterizes the way firms fight each other in the market, that is, competition, price and non-price competition. Competition is a conflict of interests that occurs where the quantity of goods and the demand for consumption are limited. Both consumers and firms can compete. Competition helps those who: • to expand and compact production • to introduce advanced innovations • to save resource costs • to increase the overall efficiency of the economy • convenient satisfaction of demand • to equalize and reduce prices. The terms monopoly , monopsony , and oligopoly are derived from the Greek language, meaning poleo - to sell, psoneo - to buy, mono - one, oligos - a few, poly - many. The market structure reflects the most important aspects of the market: For example, the number of firms in the network, opportunities for firms to enter and exit the market, the number of buyers, the ability of individual firms to influence market prices. The lower the firm's ability to influence market prices, the more competitive the industry. To facilitate the analysis of the market structure, the following 4 models of competition in economic theory are distinguished. Perfect competition Monopolistic competition Pure monopoly Oligopoly.
analysis of market structures . The following principles are used to classify market structures: 1. The number of firms in the network (one, several, many). This principle shows not only the number of operating firms, but also the relationship between them, the competitive relationship. If there is a large number of firms in the network, then the products produced by the firms will not be large relative to each other, none of the firms will be able to take advantage and pose a threat to other competitors. If firms are large relative to the market and pose a serious threat to competitors, then producers are few. At least it will be a monopoly, that is, one firm. 2. Characteristics of the manufactured product (one-of-a-kind, differentiated, unique). The quality of the product is determined by how it is perceived by the consumer. If the consumer does not express a desire for a trademark of a certain company, but accepts all goods as absolute substitute goods, then these goods will be one type of goods. If the product has a trademark, unique design, packaging, advertising, and manufacturing quality, this product is a differentiated product. If there is no substitute for the product, then it is a single, unique product in the eyes of the consumers, and this product receives this name. 3. The degree to which firms can influence prices in the market. This indicator is determined by the excess of the firm's average costs compared to market prices. The higher the result obtained by the firm, the more it can influence the prices in the market, as a result, it can get additional income. 4. Market entry opportunity and exit costs for new firms. These can be identified by barriers in the network, which are divided into two groups. 1) Artificial barriers (institutional). Issuance of patents and licenses for companies limited by the type of activity. 2) Natural barriers. Investment costs needed to start production, high diversification of products on the market, consumer confidence in the existing firm's trademark, routes to product distribution channels. For example, communication companies in Uzbekistan. The four major telecommunications companies provide almost one hundred percent of the communications. There are huge hurdles for them to compete. 3. Perfect competition model and its characteristics Real markets are usually imperfectly competitive and can be classified as either oligopoly or monopolistic competition. Despite this situation, the study of market structures begins with the analysis of the perfect competition model. First, this model allows for the study of markets close to competitive conditions (ie, a market of mainly monoproduct producers in which firms can freely enter and exit the network). Secondly, in the example of a perfectly competitive market, the main problem facing every firm, i.e., how much product should be produced to maximize its profit, and what are the economic equilibrium conditions of the firm are solved. Finally, and thirdly, the model of perfect competition allows to evaluate the efficiency of real networks and their degree of monopolization. Characteristics of the perfect competition model: 1. The products of the companies are of the same type, so it does not matter to consumers which manufacturer they buy products from. All goods in the network are absolute substitute goods. This means that an increase in prices by one producer, even by a small amount relative to the market, will lead to zero demand for his product. 2. The number of economic subjects in the market is unlimited, their share in the gross network is relatively low. Under perfect competition, a firm can offer only an imperceptible fraction of the network to the market. The decision of an individual firm (individual consumer) to change the volume of sales (purchases) does not affect the market price of the product. The market price is formed as a result of joint actions of sellers and buyers. 3. Freedom of market entry and exit. There will be no restrictions and bans on the market at all. The state will not intervene in the supply and demand mechanism at all. Freedom of entry and exit from the market facilitates the absolute free movement of all resources within and between sectors. 4. Possession of perfect knowledge and information of all subjects in the market. All decisions are made under conditions of certainty. This means that all firms will have complete information about their revenues and costs, prices of all resources, available technologies, and consumers will have complete information about prices at all firms. At the same time, information is distributed quickly and completely free of charge. The above characteristics are very strict and in practice, perfect application is seldom realized. Nevertheless, the model of perfect competition is one of the important elements of economic analysis . A market is a perfectly competitive market if the following conditions are met: sellers and buyers accept the price of the product in the market as it is and they cannot influence the price; entry of new sellers to the market is not restricted; sellers do not develop a strategy to act together. A market in which such conditions are met is considered a perfectly competitive market, a purely competitive market, or a competitive market. A firm operating in a competitive market is considered a competitive firm. When we refer to a competing firm hereafter, we mean a firm operating in a competitive market. So, in a competitive market, the price of goods is formed on the basis of demand and supply in the market, and neither the seller nor the buyer can influence it: . In a competitive market, since the share of the goods sold by each individual seller in the total amount of goods sold in the market is very small, he cannot change the price of the goods. When we analyze a competitive market, we consider the goods on the market to be the same, that is, their quality is the same. (Actually, depending on the quality of the goods, their prices are different, the price of quality goods is higher than the price of goods of lower quality). In a competitive market, total revenue is equal to the revenue received by the firm from selling a certain amount of good, that is, total revenue is equal to the product quantity sold multiplied by its price : , where or - total income; - price; - amount of bounty sold. In general, since income depends on the amount of products sold, it is written in the form. Average profit is the profit per unit of product sold, that is: . Marginal revenue ( ) is the increase in total revenue resulting from the sale of one additional unit of good , i.e.: .
4. Long-term and short-term equilibrium of the competitive market. In an environment where prices are set by the market, the main way to maximize profits is to reduce production costs and control access to the market. Based on such conditions, the firm must determine the optimal production volume that can get maximum profit for itself. In the short run, the amount of capital of the firm does not change, so it will have to choose the amount of variable factors of production that maximizes profit. It is known that profit maximization means maximizing the difference between total revenue and total costs, i.e . Income, cost and profit of the firm Thus, the profit reaches the maximum value when the firm's marginal revenue and marginal cost are equal to each other. is a condition of profit maximization, and the firm maintains its power regardless of the market (competition, monopoly, oligopoly). From the above considerations, it follows that if there is, the firm should increase the volume of production (each additional product produced increases the total profit), if there is - it will be necessary to reduce the volume of production. Equilibrium of a competitive firm. We have seen that in a competitive market the price is determined by the market and cannot be influenced by the firm. The marginal revenue of a firm operating in such a market is equal to the price, i.e. . So, the condition (rule) of profit maximization of a competitive firm is that the firm should choose the volume of production in such a way that the price at this volume is equal to the marginal cost: . follows the rule of marginal product and stoppage in profit maximization by comparing costs with revenues in the short run . According to the rule of marginal product, the firm tries to maintain the volume of product production at a level that ensures the equality of marginal revenue and marginal cost . According to the breakeven rule, if the economic profit of the firm is less than zero at any volume of production, that is, if the price in the competitive market is less than the average variable cost , the firm will shut down (it will leave this market, terminate its activity ). The above rules are general for the firm. These rules remain valid regardless of the market in which the firm operates. Choosing the volume of production in the long run. In the long run, the firm changes all the factors it uses, including production capacity. In the long run, the ability of the firm to change the amount of its own capital, that is, to change the production capacity, allows the firm to reduce production costs. How the firm's production costs change is determined by the increase, invariance and decrease of the efficiency of the scale of production. It should also be noted that when we analyze the long-term performance of a firm, its average costs are important. Assume that the firm's production process has constant economies of scale for all production volumes. In this case, when the consumption of production factors doubles, the volume of production also doubles. Therefore, the average cost of production does not change with the increase in production volume. the firm is zero in the long-run equilibrium. However, this does not mean that the firm does not make a profit at all, in fact, the firm makes a real normal profit according to its invested (added) capital. Economic profit also takes into account opportunity cost, that is, the profit that the owner of the firm receives from investing his capital in another industry. Therefore, it can be said that the average costs of a competing firm in the long run include the normal profit (average profit for the industry). The economic profit of the owner of the firm is zero, even if he invests his capital in another industry, he would receive a normal profit equal to this amount, so his opportunity cost is zero. If the opportunity cost of the owner of the firm was higher than zero, i.e. positive, he would have taken his capital from this industry and invested it in another industry that would provide economic benefits. Thus, even if the competing firm's long-run average cost is equal to price (even if it earns zero economic profit), it will not stop working (because it earns normal profit). In a competitive market, because entry and exit from the network is free and the network itself is competitive, the economic profits of firms tend to approach zero. In general, it takes a long time to reach equilibrium in the long run, but in the short run, the firm can either make a large profit or suffer a large loss. A firm that is the first to produce a type of product can earn more short-term profits than a firm that does so later. Similarly, a loss-making first-mover firm may end up saving a significant amount of its investment. The concept of long-run equilibrium shows how and in which direction the firm will move. Profits of a competitive firm in the short term and their calculation The market is a perfectly competitive or competitive market if the following conditions are met: ˗ sellers and buyers accept the product price as it is in the market and they cannot change the price; ˗ entry of new sellers to the market and exit of sellers from the market are not restricted ; ˗ sellers act together _ strategy work can't get out ; ˗ the market subjects market about complete information get opportunity have _ Such conditions executable market perfect competed market , net competed or competed is considered a market . Competed acting in the market of the firm competitive is considered a firm . From this after competitive firm about Speaking of which , we competed acting in the market the firm mean we hold So , they competed in the market commodity cost demand in the market and offer based on is formed and to him Both the seller and the buyer are affected do it cannot : P=const Competed in the market each one separately vendor by for sale of the goods in the market for sale common commodity amount share that it is very little for it is a commodity the price change ca n't Perfect competed in the market there are many sellers and buyers . Competed the market analysis when we do in the market goods one different , that is their quality one we consider different ( in practice of the goods to quality depending on their cost each different good quality _ of the goods cost quality lower of the goods for the price according to high will be ). Competed in the market common revenue ( TR ) firm by known in quantity blessing from selling received to income equal , that is common income sold out product amount ( Q ) of it times the price ( P ). equal to : A product of a competing firm _ _ _ _ _ _ _ _ _ _ _ _ divide a nt a l a b line his the middle line of the room _ _ _ _ _ _ bil a n if o d a l a n a di. Assume that the firm is producing _ _ _ _ _ _ _ _ _ _ _ divide a nt a l a b function general holding _ _ _ _ linear function Let it look like this : _ _ _ _ 2. Competitive of the firm balance status We saw ediki , competed in the market price market by is determined and to him firm effect _ do it ca n't Such acting in the market firm's demand curve horizontal from the line consists of being his _ finite income for the price equal , that is , MR=P So , competitive firm benefit maximization condition ( rule ) from that is that the firm work release size so to choose it should be in volume price finite to the cost equal to let : P=MC Competed in the market activity showing firm benefit maximization ( equilibrium condition ) condition is called , i.e competitive of the firm finite product the rule represents _ This to the rule according to firm product work release size finite cost for the price equal to to be until to increase can _ So , they competed firm benefit maximization condition with the help of our company balance situation determiner point graph through to determine can _ In the picture Point E is competitive of the firm short term in between balance situation represents _ At this point is this _ at the point firm profit which maximizes work release volume reaches Q* . 3. Competed of the firm short term in between offer of the firm offer line each one possible was in prices firm how much amount product work out offer to do represents _ Above we saw , the firm product work release price finite to the cost equal to to be until increases and price average variable from the cost small if so , work release stops ( firm closes ). So , the company from scratch high in volume work output (Q>0) proposition line finite cost ( MC ) average variable of cost from the minimum above lying down part with on top of each other falls _ from the minimum high was each how price In P profit which maximizes work release volume Q` _ graph through to determine possible Competed in the market of the price increase in the market companies work release size to increase encourages , therefore also competed for of the firm short term in between offer line grower will be Now competed in the market short term in between network balance let's look . It is known that one type ( one different the need satisfying ) goods work emits firms together network organize does _ In that case network offer network organize doer of firms suggestions from the total consists of will be Competedin the marketprice , average and finite income _ Profitability concept , types and be counted. Work release how much benefit to bring two different road with is determined. The first , of profit common amount , that is mass determine. In this from income expenses separate throw away , leftover gross benefit will be However this to the firm touched benefit not because _ his one part tax to pay goes _ TOTAL from profit firm bank loan for also pays interest two from discount after the rest benefit pure benefit being of the firm to himself touches _ Use it volume or absolute quantity of the film strength shows . This is useful level using is determined. Usefulness level is _ benefit to see norm is called profitability . _ Renatability entrepreneurship activity to him done spend relatively how much benefit to bring being his _ efficiency means Profitability benefit It is also called the norm . This benefit of capital to the amount or current spend to expenses comparing is determined . Profitability is microeconomic , that is enterprise scale economic of activity is efficiency. U enterprise achieved final financial the results generalized way represents.Expenses content xar different since they are how the result that he gave to know for of profitability differently indicators used , of them there are 2 main ones : 1. Production _ profitability . In this enterprise available of capital one part has been main and circulation capital value to the enterprise touched benefit with comparing will be seen.U with the following formula is represented by : Ri = SF/ASF+AYF*100 For example , the company has 100 mln . Soum 70 mln . _ Main tools and 30 mln circulation 16 mln _ _ _ soum pure benefit received , in this profitability as below is considered Ri = 16/70 million + 30 million * 100 = 16%
In the market price and of the firm initial ( production release factors cost when unchanged ) is finite cost and firm benefit maximizer work release volume let it be let's say Recommendation to be done common books list Pindike Robert. Microeconomics: An abridged translation from the English / Pindike Robert, Rubinfeld Daniel. - T.; 2002. E. Egamberdiev. Microeconomics. Study guide. T.: 2005 Economic theory: uchebnik / I.K. Stankovskaya, I.A. Strelets.- 5-e izd., pererab. i dop.–M.: Eksmo, 2010.- 480 str.- (Full-time MBA) Tokhliev N., Khakberdiev Q., Ermamatov Sh., Kholmatov N. Basics of economic knowledge. Manual. T. Myself. 2004, 96 p. Abulkasimov H and others _ Fundamentals of economic knowledge. Study guide. T.: Academy, 2010.-304 p. Vechkanov G.S. Economic theory. - spb.: Peter, 2009. - 448 p. Microeconomics of the course: uchebnik/ R.M. Nureev . - 2-e izd., ism. - M.: Norma: Infra-M, 2010. - 576 p. Sbornik zadach po mikroekonomike./ k "Kursu mikroekonomiki" R.M. Nureeva - M.: Norma, 2008. - 432 p. Microeconomics: a textbook for higher educational institutions / S.S. Gulomov, R.Kh.Alimov, B.T.Salimov et al. - T.: "Sharq", 2001.-320 p. 1Economic theory: uchebnik / I.K. Stankovskaya , I.A. Strelets.- 5-e izd., pererab . i dop.–M.: Eksmo, 2010.- 480 str.- (Full course MBA ) Yüklə 75,45 Kb. Dostları ilə paylaş:
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