General characteristics of a perfectly competitive market. What is competition: types and types, functions, significance for the economy and society as a whole What is sold in the market of perfect competition

• 7.1. Features of a perfectly competitive market.
• 7.2. Activities of a competitive firm in the short term.
• 7.3. A perfectly competitive market in the long run.

Control questions.

In topic 7, pay attention to the connection with the theory of the following current problems Russian economy:

• Why is there no free pricing in criminally controlled markets?
• Where can you find perfect competition in Russia?
• Bankruptcy of enterprises in Russia.
• What are they doing? Russian enterprises to reach the break-even zone?
• Why are production temporarily stopped at Russian factories?
• Does the proliferation of small businesses lead to price changes?
• Why government intervention may be necessary even in highly competitive markets.

Features of a perfectly competitive market

Supply and demand - two factors that give life to the market as a meeting place, form the price level for goods and services in the economy. By defining cost and revenue curves, they create external environment existence of the company. The behavior of the company itself, its choice of production volumes, and therefore the size of demand for resources and the amount of supply own goods depend on the type of market in which it operates.

competition

The most powerful factor dictating General terms the functioning of a particular market is the degree of development of competitive relations in it.

Etymologically the word competition goes back to Latin concurrentia, meaning clash, competition. Market competition is the struggle for limited consumer demand, waged between firms in the parts (segments) of the market available to them. As already noted (see 2.2.2), competition in a market economy performs the most important function of counterbalancing and at the same time complementing the individualism of market subjects. It forces them to take into account the interests of the consumer, and therefore the interests of society as a whole.

Indeed, during competition, the market selects from a variety of goods only those that consumers need. They are the ones who manage to sell. Others remain unclaimed and their production ceases. In other words, outside a competitive environment, an individual satisfies his own interests, regardless of others. In a competitive environment, the only way to realize one’s own interests is to take into account the interests of other persons. Competition is a specific mechanism by which a market economy resolves fundamental issues What? How? for whom to produce 2

The development of competitive relations is closely related to splitting of economic power. When it is absent, the consumer is deprived of choice and is forced to either completely agree to the conditions dictated by the manufacturer, or be completely left without the benefit he needs. On the contrary, when economic power is split and the consumer is faced with many suppliers of similar goods, he can choose the one that best suits his needs and financial capabilities.

Competition and types of markets

According to the degree of development of competition, economic theory identifies the following main types of markets:

• 1. Perfect competition market,
• 2. The market of imperfect competition, in turn divided into:
  • a) monopolistic competition;
  • b) oligopoly;
  • c) monopoly.

In a perfectly competitive market, the division of economic power is maximized and the mechanisms of competition operate at full strength. There are many manufacturers operating here, deprived of any leverage to impose their will on consumers.

At imperfect competition the division of economic power is weakened or completely absent. Therefore, the manufacturer acquires a certain degree of influence on the market.

The degree of market imperfection depends on the type of imperfect competition. In conditions monopolistic competition it is small and is associated only with the ability of the manufacturer to produce special varieties of goods that differ from competitive ones. In an oligopoly, market imperfection is significant and is dictated by the small number of firms operating on it. Finally, monopoly means the dominance of only one producer in the market.

7.1.1. Conditions of perfect competition

The perfectly competitive market model is based on four basic conditions (Figure 7.1).

Let's consider them sequentially.

Rice. 7.1.

In order for competition to be perfect, the goods offered by firms must meet the condition of product homogeneity. This means that the products of firms in the minds of buyers are homogeneous and indistinguishable, i.e. products of different enterprises are completely interchangeable (they are complete substitute goods).

Uniformity

products

Under these conditions, no buyer would be willing to pay a higher price to a hypothetical firm than he would pay to its competitors. After all, the goods are the same, buyers do not care which company they buy them from, and they, of course, choose the cheapest ones. That is, the condition of product homogeneity actually means that the difference in prices is the only reason why a buyer can choose one seller over another.

Small size and large number of market entities

With perfect competition, neither sellers nor buyers influence the market situation due to the smallness and number of all market participants. Sometimes both of these sides of perfect competition are combined when talking about the atomistic structure of the market. This means that there are a large number of small sellers and buyers in the market, just as any drop of water is made up of a gigantic number of tiny atoms.

At the same time, the purchases made by the consumer (or sales by the seller) are so small compared to the total volume of the market that the decision to reduce or increase their volumes does not create either surpluses or shortages. The total size of supply and demand simply “does not notice” such small changes. So, if one of the countless beer stalls in Moscow closes, the capital’s beer market will not become one iota more scarce, just as there will not be a surplus of the people’s favorite drink if another “point” appears in addition to the existing ones.

Inability to dictate price to the market

These restrictions (homogeneity of products, large number and small size of enterprises) actually predetermine that With perfect competition, market participants are unable to influence prices.

It is ridiculous to believe, say, that one seller of potatoes on the “collective farm” market will be able to impose on buyers a higher price for his product if other conditions of perfect competition are met. Namely, if there are many sellers and their potatoes are exactly the same. Therefore, it is often said that under perfect competition, each individual selling firm “gets the price,” or is a price-taker.

Market actors in conditions of perfect competition can influence the overall situation only when they act in harmony. That is, when some external conditions encourage all sellers (or all buyers) in the industry to make the same decisions. In 1998, Russians experienced this for themselves, when in the first days after the devaluation of the ruble, all food stores, without agreement, but with the same understanding of the situation, unanimously began to raise prices for “crisis” goods - sugar, salt, flour, etc. Although the price increase was not economically justified (these goods rose in price much more than the ruble depreciated), sellers managed to impose their will on the market precisely as a result of the unity of the position they took.

And this is not a special case. The difference in the consequences of changes in supply (or demand) by one firm and the entire industry as a whole plays a large role in the functioning of a perfectly competitive market.

No barriers

The next condition for a perfect police force (the goal is to force the criminal “owners” of the market to reveal themselves, and then arrest them), it fights precisely to remove barriers to entry into the market.

On the contrary, typical for perfect competition no barriers or freedom to enter to the market (industry) and leave it means that resources are completely mobile and move without problems from one type of activity to another. Buyers freely change their preferences when choosing goods, and sellers easily switch production to produce more profitable products.

There are no difficulties with the cessation of operations on the market. Conditions do not force anyone to remain in the industry if it is not in their best interests. In other words, the absence of barriers means absolute flexibility and adaptability of a perfectly competitive market.

Perfect

information

The last condition for the existence of a perfectly competitive market is that

giving standardized homogeneous products, and, therefore, operating in conditions close to perfect competition.

2. It has enormous methodological significance, since it allows - albeit at the cost of large simplifications of the real market picture - to understand the logic of the company's actions. This technique, by the way, is typical for many sciences. Thus, in physics a number of concepts are used ( ideal gas, black body, ideal engine), based on assumptions (no friction, heat loss, etc.), which are never completely fulfilled in the real world, but serve as convenient models for describing it.

The methodological value of the concept of perfect competition will be fully revealed later (see topics 8, 9 and 10), when considering the markets of monopolistic competition, oligopoly and monopoly, which are widespread in the real economy. Now it is advisable to dwell on the practical significance of the theory of perfect competition.

What conditions can be considered close to a perfectly competitive market? Generally speaking, there are different answers to this question. We will approach it from the position of the firm, that is, we will find out in what cases the firm in practice acts as (or almost as) as if it were surrounded by a perfectly competitive market.

Criterion

perfect

competition

Let us first understand what the demand curve for the products of a firm operating in conditions of perfect competition should look like. Let us remember, firstly, that the company accepts the market price, i.e. the latter is a given value for it. Secondly, the company enters the market with a very small part of the total quantity of goods produced and sold by the industry. Consequently, the volume of its production will not affect the market situation in any way and this given price level will not change with an increase or decrease in output.

Obviously, in such conditions, the demand curve for the company's products will look like a horizontal line (Fig. 7.2). Whether the firm produces 10 units of output, 20 or 1, the market will absorb them at the same price P.

From an economic point of view, a price line parallel to the x-axis means absolute elasticity of demand. In the case of an infinitesimal reduction in price, the firm could expand its sales indefinitely. With an infinitesimal increase in price, the company's sales would be reduced to zero.

The presence of absolutely elastic demand for a firm's products is usually called the criterion of perfect competition. As soon as such a situation develops in the market, the company begins

Rice. 7.2. Demand and total revenue curves for an individual firm under perfect competition

behave like (or almost like) a perfect competitor. Indeed, fulfilling the criterion of perfect competition sets many conditions for the company to operate in the market, in particular, it determines the patterns of income generation.

Average, marginal and total revenue of a firm

Income (revenue) of a company refers to payments received in its favor when selling products. Like many other indicators, economics calculates income in three varieties. Total income(TR) name the total amount of revenue that the company receives. Average income(AR) reflects revenue per unit products sold , or (which is the same) total revenue divided by the number of products sold. Finally, marginal revenue(MR) represents additional income received as a result of the sale of the last unit of production sold.

A direct consequence of fulfilling the criterion of perfect competition is that the average income for any volume of output is equal to the same value - the price of the product and that the marginal income is always at the same level. So, if the established market price for a loaf of bread is 3 rubles, then the bread stall acting as a perfect competitor accepts it regardless of sales volume (the criterion of perfect competition is met). Both 100 and 1000 loaves will be sold at the same price per piece. Under these conditions, each additional loaf sold will bring the stall 3 rubles. (marginal revenue). And the same amount of revenue will be generated on average for each loaf of bread sold (average income). Thus, equality is established between average income, marginal income and price (AR=MR=P). Therefore, the demand curve for the products of an individual enterprise under conditions of perfect competition is at the same time the curve of its average and marginal revenue.

Regarding the total income ( total revenue) of the enterprise, then it changes in proportion to the change in output and in the same direction (see Fig. 7.2). That is, there is a direct, linear relationship:

If the stall in our example sold 100 loaves of bread for 3 rubles, then its revenue, naturally, will be 300 rubles.

Graphically, the total (gross) income curve is a ray drawn through the origin with a slope:

That is, the slope of the gross revenue curve is equal to marginal revenue, which in turn is equal to the market price of the product sold by a competitive firm. From here, in particular, it follows that the higher the price, the steeper the gross income straight line will go up.

Small business in Russia and perfect competition

The simplest example we have already given, which is constantly encountered in everyday life, with the sale of bread, suggests that the theory of perfect competition is not as far from Russian reality as one might think.

The fact is that most new businessmen started their business literally from scratch: no one had large capital in the USSR. Therefore, small business has covered even those areas that in other countries are controlled by big capital. Nowhere in the world do small firms play a significant role in export-import transactions. In our country, many categories of consumer goods are imported mainly by millions of shuttles, i.e. not even just small, but the smallest enterprises. In the same way, only in Russia, construction for private individuals and renovation of apartments are actively carried out by “wild” teams - the smallest companies, often operating without any registration. A specifically Russian phenomenon is “small wholesale“- this term is even difficult to translate into many languages. In German, for example, wholesale trade is called “large trade” - Grosshandel, since it is usually carried out on a large scale. Therefore, German newspapers often convey the Russian phrase “small-scale wholesale trade” with the absurd-sounding term “small-scale trade.”

Shuttles selling Chinese sneakers; and ateliers, photography, hairdressing salons; sellers offering the same brands of cigarettes and vodka at metro stations, and auto repair shops; typists and translators; apartment renovation specialists and peasants selling at collective farm markets - they are all united by the approximate similarity of the product offered, the insignificant scale of business compared to the size of the market, the large number of sellers, i.e., many of the conditions of perfect competition. It is also obligatory for them to accept the prevailing market price. The criterion of perfect competition in the sphere of small business in Russia is met quite often. In general, albeit with some exaggeration, Russia can be called a country-reserve of perfect competition. In any case, conditions close to it exist in many sectors of the economy where the new private business(and not privatized enterprises).

A perfectly competitive market is characterized by the following features:

The firms' products are homogeneous, so consumers don’t care which manufacturer they buy it from. All goods in the industry are perfect substitutes, and the cross price elasticity of demand for any pair of firms tends to infinity:

This means that any, no matter how small, increase in price by one manufacturer above the market level leads to a reduction in demand for its products to zero. Thus, the difference in prices may be the only reason for preferring one or another company. There is no non-price competition.

The number of economic entities on the market is unlimited, and their share is so small that the decisions of an individual company (individual consumer) to change the volume of its sales (purchases) do not affect the market price product. This, of course, assumes that there is no collusion between sellers or buyers to obtain monopoly power in the market. The market price is the result of the joint actions of all buyers and sellers.

Freedom of entry and exit on the market. There are no restrictions or barriers - there are no patents or licenses limiting activity in this industry, significant initial capital investments are not required, positive economies of scale are extremely insignificant and do not prevent new firms from entering the industry, there are no government intervention into the mechanism of supply and demand (subsidies, tax benefits, quotas, social programs and so on.). Freedom of entry and exit presupposes absolute mobility of all resources, freedom of their movement geographically and from one type of activity to another.

Perfect knowledge all market entities. All decisions are made with certainty. This means that all firms know their revenue and cost functions, the prices of all resources and all possible technologies, and all consumers have complete information about the prices of all firms. It is assumed that information is distributed instantly and free of charge.

These characteristics are so strict that there are practically no real markets that fully satisfy them.

However, the perfect competition model:

• allows you to explore markets in which a large number of small firms sell homogeneous products, i.e. markets similar in terms of conditions to this model;

• clarifies the conditions for maximizing profits;
• is the standard for assessing the performance of the real economy.

Short-run equilibrium of a firm under perfect competition

Demand for a perfect competitor's product

Under perfect competition, the prevailing market price is determined by the interaction of market demand and market supply, as shown in Fig. 1, and determines the horizontal demand curve and average revenue (AR) for each individual firm.

Rice. 1. Demand curve for a competitor’s products

Due to product homogeneity and availability large quantity perfect substitutes, no firm can sell its product at a price even slightly higher than the equilibrium price, Re. On the other hand, an individual firm is very small compared to the total market, and it can sell all its output at the price Pe, i.e. she has no need to sell the goods at a price below Re. Thus, all firms sell their products at the market price Pe, determined by market supply and demand.

The income of a firm that is a perfect competitor

The horizontal demand curve for the products of an individual firm and a single market price (P=const) predetermine the shape of income curves under conditions of perfect competition.

1. Total income () - the total amount of income received by the company from the sale of all its products,

represented on the graph by a linear function that has a positive slope and originates at the origin, since any unit of output sold increases volume by an amount equal to the market price!!Re??.

2. Average income () - income from the sale of a unit of production,

is determined by the equilibrium market price!!Re??, and the curve coincides with the firm's demand curve. A-priory

3. Marginal income () - additional income from the sale of one additional unit of output,

Marginal revenue is also determined by the current market price for any volume of output.

A-priory

All income functions are presented in Fig. 2.

Rice. 2. Income of a competing company

Determining the optimal output volume

In perfect competition, the current price is set by the market, and an individual firm cannot influence it because it is price taker. Under these conditions, the only way to increase profits is to regulate output.

Based on the market and technological conditions existing at a given time, the company determines optimal output volume, i.e. volume of output providing the company profit maximization(or minimization if making a profit is impossible).

There are two interrelated methods for determining the optimum point:

1. Total cost - total income method.

The firm's total profit is maximized at the level of output where the difference between and is as large as possible.

n=TR-TC=max

Rice. 3. Determination of the optimal production point

In Fig. 3, the optimizing volume is located at the point where the tangent to the TC curve has the same slope as the TR curve. The profit function is found by subtracting TC from TR for each volume of production. The peak of the total profit curve (p) shows the level of output at which profit is maximized in the short run.

From the analysis of the total profit function it follows that total profit reaches its maximum at the volume of production at which its derivative is equal to zero, or

dп/dQ=(п)`= 0.

The derivative of the total profit function has a strictly defined economic sense is the marginal profit.

Marginal profit ( MP) shows the increase in total profit when the volume of output changes by one unit.

• If Mn>0, then the total profit function increases, and additional production can increase the total profit.
• If MP<0, то функция совокупной прибыли уменьшается, и дополнительный выпуск сократит совокупную прибыль.
• And finally, if Mn=0, then the value of the total profit is maximum.

From the first condition of profit maximization ( MP=0) the second method follows.

2. Marginal cost-marginal revenue method.

• Мп=(п)`=dп/dQ,
• (n)`=dTR/dQ-dTC/dQ.

And since dTR/dQ=MR, A dTC/dQ=MS, then total profit reaches its greatest value at such a volume of output at which marginal costs are equal to marginal revenue:

If marginal costs are greater than marginal revenue (MC>MR), then the enterprise can increase profits by reducing production volume. If marginal cost is less than marginal revenue (MC<МR), то прибыль может быть увеличена за счет расширения производства, и лишь при МС=МR прибыль достигает своего максимального значения, т.е. устанавливается равновесие.

This equality valid for any market structure, but in conditions of perfect competition it is slightly modified.

Since the market price is identical to the average and marginal revenues of a firm - a perfect competitor (PAR = MR), the equality of marginal costs and marginal revenues is transformed into the equality of marginal costs and prices:

The firm operates in conditions of perfect competition. Current market price P = 20 USD The total cost function has the form TC=75+17Q+4Q2.

It is necessary to determine the optimal output volume.

To find the optimal volume, we calculate MC and MR and equate them to each other.

• 1. МR=P*=20.
• 2. MS=(TS)`=17+8Q.
• 3. MC=MR.
• 20=17+8Q.
• 8Q=3.
• Q=3/8.

Thus, the optimal volume is Q*=3/8.

The optimal volume can also be found by equating the marginal profit to zero.

• 1. Find the total income: TR=Р*Q=20Q
• 2. Find the total profit function:
• n=TR-TC,
• n=20Q-(75+17Q+4Q2)=3Q-4Q2-75.
• 3. Define the marginal profit function:
• MP=(n)`=3-8Q,
• and then equate MP to zero.
• 3-8Q=0;
• Q=3/8.

Solving this equation, we got the same result.

Condition for obtaining short-term benefits

The total profit of an enterprise can be assessed in two ways:

• P=TR-TC;
• P=(P-ATS)Q.

If we divide the second equality by Q, we get the expression

characterizing the average profit, or profit per unit of output.

It follows from this that whether a firm obtains profits (or losses) in the short term depends on the ratio of its average total costs (ATC) at the point of optimal production Q* and the current market price (at which the firm, a perfect competitor, is forced to trade).

The following options are possible:

if P*>ATC, then the firm has positive economic profit in the short term;

In the presented figure, the volume of total profit corresponds to the area of ​​the shaded rectangle, and the average profit (i.e. profit per unit of output) is determined by the vertical distance between P and ATC. It is important to note that at the optimum point Q*, when MC = MR, and the total profit reaches its maximum value, n = max, the average profit is not maximum, since it is determined not by the ratio of MC and MR, but by the ratio of P and ATC.

if P*<АТС, то фирма имеет в краткосрочном периоде отрицательную экономическую прибыль (убытки);

if P*=ATC, then economic profit is zero, production is break-even, and the firm receives only normal profit.

Condition for cessation of production activities

In conditions when the current market price does not bring positive results in the short term economic profit, the company faces a choice:

• or continue unprofitable production,
• or temporarily suspend its production, but incur losses in the amount of fixed costs ( F.C.) production.

The company makes a decision on this issue based on the ratio of its average variable cost (AVC) and market price.

When a firm decides to close, its total revenues ( TR) fall to zero, and the resulting losses become equal to its total fixed costs. Therefore, until price is greater than average variable cost

P>АВС,

company production should continue. In this case, the income received will cover all variables and at least part of the fixed costs, i.e. losses will be less than at closure.

If price equals average variable cost

then from the point of view of minimizing losses to the company indifferent, continue or cease its production. However, most likely the company will continue to operate in order not to lose its customers and preserve the jobs of its employees. At the same time, its losses will not be higher than at closure.

And finally, if prices are less than average variable costs then the company should cease operations. In this case, she will be able to avoid unnecessary losses.

Let us prove the validity of these arguments.

A-priory, n=TR-TC. If a firm maximizes its profit by producing the nth number of products, then this profit ( pn) must be greater than or equal to the profit of the company in conditions of closure of the enterprise ( By), because otherwise the entrepreneur will immediately close his enterprise.

In other words,

Thus, the firm will continue to operate only as long as the market price is greater than or equal to its average variable cost. Only under these conditions will the company minimize its losses in the short term by continuing its activities.

Equality MS=MR, as well as equality MP=0 show the optimal output volume (i.e., the volume that maximizes profits and minimizes losses for the company).

The relationship between price ( R) and average total costs ( ATS) shows the amount of profit or loss per unit of output if production continues.

The relationship between price ( R) and average variable costs ( AVC) determines whether or not it is necessary to continue activities in the event of unprofitable production.

Short-run supply curve of a competing firm

A-priory, supply curve reflects the supply function and shows the quantity of goods and services that producers are willing to offer to the market at given prices, at a given time and place.

To determine the shape of the short-run supply curve for a perfectly competitive firm,

Suppose the market price is Ro, and the average and marginal cost curves look like in Fig. 4.8.

Because the Ro(closing point), then the firm’s supply is zero. If the market price rises to a higher level, then the equilibrium output will be determined by the ratio M.C. And M.R.. The very point of the supply curve ( Q;P) will lie on the marginal cost curve.

By successively increasing the market price and connecting the resulting dots, we get the short-run supply curve. As can be seen from the presented Fig. 4.8, for a perfect competitor firm, the short-run supply curve coincides with its marginal cost curve ( MS) above the minimum level of average variable costs ( AVC). At lower than min AVC level of market prices, the supply curve coincides with the price axis.

It is known that a perfect competitor firm has total (TC) and total variable (TVC) costs represented by the following equations:

• TS=10+6 Q-2 Q 2 +(1/3) Q 3 , Where TFC=10;
• TVC=6 Q-2 Q 2 +(1/3) Q 3 .

Determine the supply function of a firm under perfect competition.

1. Find MS:

MS=(TC)`=(VC)`=6-4Q+Q 2 =2+(Q-2) 2 .

2. Let us equate MC to the market price (condition of market equilibrium under perfect competition MC=MR=P*) and obtain:

2+(Q-2) 2 = P or

Q=2(P-2) 1/2 , If R2.

However, from the previous material we know that the volume of supply Q = 0 at P

Q=S(P) at Pmin AVC.

3. Let us determine the volume at which the average variable costs minimal:

• min AVC=(TVC)/ Q=6-2 Q+(1/3) Q 2 ;
• (AVC)`= dAVC/ dQ=0;
• -2+(2/3) Q=0;
• Q=3,

those. Average variable costs reach their minimum at a given volume.

4. Determine what min AVC is equal to by substituting Q=3 into the min AVC equation.

• min AVC=6-2(3)+(1/3)(3) 2 =3.

5. Thus, the firm’s supply function will be:

• Q=2+(P-2) 1/2 ,If P3;
• Q=0 if R<3.

Long-run market equilibrium under perfect competition

Long term

So far we have considered the short-term period, which assumes:

• the existence of a constant number of firms in the industry;
• the presence of enterprises with a certain amount of permanent resources.

In the long term:

• all resources are variable, which means that it is possible for a company operating in the market to change the size of production, introduce new technology, or modify products;
• change in the number of enterprises in the industry (if the profit received by the company is lower than normal and negative forecasts for the future prevail, the enterprise may close and leave the market, and vice versa, if the profit in the industry is high enough, an influx of new companies is possible).

Basic assumptions of the analysis

To simplify the analysis, let us assume that the industry consists of n typical enterprises with same cost structure, and that a change in the output of existing firms or a change in their number do not affect resource prices(we will remove this assumption later).

Let the market price P1 determined by the interaction of market demand ( D1) and market supply ( S1). The cost structure of a typical company in the short term looks like curves SATC1 And SMC1(Fig. 4.9).

Rice. 9. Long-run equilibrium of a perfectly competitive industry

Mechanism for the formation of long-term equilibrium

Under these conditions, the firm's optimal output in the short run will be q1 units. Production of this volume provides the company with positive economic profit, since the market price (P1) exceeds the firm's average short-term costs (SATC1).

Availability short-term positive profit leads to two interrelated processes:

• on the one hand, a company already operating in the industry strives expand your production and receive economies of scale in the long term (according to the LATC curve);
• on the other hand, external firms will begin to show interest in penetration into this industry(depending on the amount of economic profit, the penetration process will proceed at different speeds).

The emergence of new firms in the industry and the expansion of the activities of old ones shifts the market supply curve to the right to the position S2(as shown in Fig. 9). The market price decreases from P1 before P2, and the equilibrium volume of industry production will increase from Q1 before Q2. Under these conditions, the economic profit of a typical firm falls to zero ( P=SATC) and the process of attracting new companies to the industry is slowing down.

If for some reason (for example, the extreme attractiveness of initial profits and market prospects) a typical firm expands its production to level q3, then the industry supply curve will shift even further to the right to the position S3, and the equilibrium price will fall to the level P3, lower than min SATC. This will mean that firms will no longer be able to make even normal profits and a gradual decline will begin. outflow of companies into more profitable areas of activity (as a rule, the least effective ones go).

The remaining enterprises will try to reduce their costs by optimizing sizes (i.e. by slightly reducing the scale of production to q2) to the level at which SATC=LATC, and it is possible to obtain a normal profit.

Shift of the industry supply curve to the level Q2 will cause the market price to rise to P2(equal to the minimum value of long-term average costs, Р=min LAC). At a given price level, a typical firm makes no economic profit ( economic profit is zero, n=0), and is only capable of extracting normal profit. Consequently, the motivation for new firms to enter the industry disappears and a long-term equilibrium is established in the industry.

Let's consider what happens if the equilibrium in the industry is upset.

Let the market price ( R) has established itself below the long-term average costs of a typical firm, i.e. P. Under these conditions, the company begins to incur losses. There is an outflow of firms from the industry, a shift in market supply to the left, and while market demand remains unchanged, the market price rises to the equilibrium level.

If the market price ( R) is set above the average long-term costs of a typical firm, i.e. P>LAТC, then the firm begins to receive positive economic profit. New firms enter the industry, market supply shifts to the right, and with constant market demand, the price drops to the equilibrium level.

Thus, the process of entry and exit of firms will continue until a long-run equilibrium is established. It should be noted that in practice the regulatory forces of the market work better to expand than to contract. Economic profit and freedom to enter the market actively stimulate an increase in industry production volumes. On the contrary, the process of squeezing firms out of an overexpanded and unprofitable industry takes time and is extremely painful for the participating firms.

Basic conditions for long-term equilibrium

• Operating firms make the best use of the resources at their disposal. This means that each firm in the industry maximizes its profit in the short run by producing the optimal output at which MR=SMC, or since the market price is identical to marginal revenue, P=SMC.
• There are no incentives for other firms to enter the industry. The market forces of supply and demand are so strong that firms are unable to extract more than is necessary to keep them in the industry. those. economic profit is zero. This means that P=SATC.
• Firms in the industry cannot reduce total average costs in the long run and make a profit by expanding the scale of production. This means that to earn normal profits, a typical firm must produce a level of output that corresponds to the minimum of long-run average total costs, i.e. P=SATC=LATC.

In long-term equilibrium, consumers pay the minimum economically possible price, i.e. the price required to cover all production costs.

Market supply in the long run

The long-run supply curve of an individual firm coincides with the increasing portion of LMC above min LATC. However, the market (industry) supply curve in the long run (as opposed to the short run) cannot be obtained by horizontally summing the supply curves of individual firms, since the number of these firms varies. The shape of the market supply curve in the long run is determined by how prices for resources in the industry change.

At the beginning of the section, we introduced the assumption that changes in industry production volumes do not affect resource prices. In practice, there are three types of industries:

• with fixed costs;
• with increasing costs;
• with decreasing costs.

The market price will rise to P2. The optimal output of an individual firm will be Q2. Under these conditions, all firms will be able to earn economic profits, inducing other companies to enter the industry. The sectoral short-term supply curve moves to the right from S1 to S2. The entry of new firms into the industry and the expansion of industry output will not affect resource prices. The reason for this may be that resources are abundant, so that new firms will not be able to influence resource prices and increase the costs of existing firms. As a result, the LATC curve of a typical firm will remain the same.

Restoring equilibrium is achieved according to the following scheme: the entry of new firms into the industry causes the price to fall to P1; profits are gradually reduced to the level of normal profits. Thus, industry output increases (or decreases) following changes in market demand, but the supply price in the long run remains unchanged.

This means that a fixed cost industry looks like a horizontal line.

If an increase in industry volume causes an increase in resource prices, then we are dealing with the second type of industry. The long-term equilibrium of such an industry is shown in Fig. 4.9 b.

More high price allows firms to earn economic profits, which attracts new firms to the industry. The expansion of aggregate production necessitates an ever-increasing use of resources. As a result of competition between firms, prices for resources increase, and as a result, the costs of all firms (both existing and new) in the industry increase. Graphically, this means an upward shift in the marginal and average cost curves of a typical firm from SMC1 to SMC2, from SATC1 to SATC2. The firm's short-run supply curve also shifts to the right. The process of adaptation will continue until economic profit runs out. In Fig. 4.9, the new equilibrium point will be the price P2 at the intersection of the demand curves D2 and supply S2. At this price, a typical firm chooses a production volume at which

P2=MR2=SATC2=SMC2=LATC2.

The long-run supply curve is obtained by connecting the short-run equilibrium points and has a positive slope.

The analysis of long-term equilibrium of industries with decreasing costs is carried out according to a similar scheme. Curves D1, S1 are the initial curves of market demand and supply in the short term. P1 is the initial equilibrium price. As before, each firm reaches equilibrium at point q1, where the demand curve - AR-MR touches min SATC and min LATC. In the long run, market demand increases, i.e. the demand curve shifts to the right from D1 to D2. The market price increases to a level that allows firms to make an economic profit. New companies begin to flow into the industry, and the market supply curve shifts to the right. Expanding production volumes leads to lower prices for resources.

This is a rather rare situation in practice. An example would be a young industry emerging in a relatively undeveloped area where the resource market is poorly organized, marketing is at a primitive level, and the transport system functions poorly. An increase in the number of firms can increase the overall efficiency of production, stimulate the development of transport and marketing systems, and reduce the overall costs of firms.

Due to the fact that an individual company cannot control such processes, this kind of cost reduction is called external economy(eng. external economies). It is caused solely by industry growth and forces beyond the control of the individual firm. External economies should be distinguished from the already known internal economies of scale, achieved by increasing the scale of the firm’s activities and completely under its control.

Taking into account the factor of external savings, the total cost function of an individual firm can be written as follows:

TCi=f(qi,Q),

Where qi- volume of output of an individual company;

Q— the volume of output of the entire industry.

In industries with constant costs, there are no external economies; the cost curves of individual firms do not depend on the industry's output. In industries with increasing costs, negative external diseconomies take place; the cost curves of individual firms shift upward with increasing output. Finally, in industries with decreasing costs, there are positive external economies that offset the internal diseconomies due to diminishing returns to scale, so that the cost curves of individual firms shift downward as output increases.

Most economists agree that in the absence of technological progress, the most typical industries are those with increasing costs. Industries with decreasing costs are the least common. As industries grow and mature, industries with decreasing and constant costs are likely to become industries with increasing costs. On the contrary, technological progress can neutralize the rise in resource prices and even lead to their fall, resulting in the emergence of a downward-sloping long-term supply curve. An example of an industry in which costs are reduced as a result of scientific and technical progress is the production of telephone services.

The main features of the market structure of perfect competition in itself general view were described above. Let's take a closer look at these characteristics.

1. The presence in the market of a significant number of sellers and buyers of this good. This means that not a single seller or buyer in such a market is able to influence the market equilibrium, which indicates that none of them has market power. Market subjects here are completely subordinated to the market elements.

2. Trade is carried out in a standardized product (for example, wheat, corn). This means that the product sold in the industry by different firms is so homogeneous that consumers have no reason to prefer the products of one company to the products of another manufacturer.

3. The inability of one firm to influence the market price, since there are many firms in the industry, and they produce standardized goods. In perfect competition, each individual seller is forced to accept the price dictated by the market.

4. Lack of non-price competition, which is due to the homogeneous nature of the products sold.

5. Buyers are well informed about prices; if one of the manufacturers increases the price of their products, they will lose buyers.

6. Sellers are not able to collude on prices, which is due to big amount firms in this market.

7. Free entry and exit from the industry, i.e., there are no entry barriers blocking entry into this market. In a perfectly competitive market, there is no difficulty in starting a new firm, nor is there any problem if an individual firm decides to leave the industry (since firms are small in size, there will always be an opportunity to sell the business).

As an example of markets of perfect competition, markets can be called individual species agricultural products.

For your information. In practice, no existing market is likely to meet all the criteria for perfect competition listed here. Even markets that are very similar to Perfect Competition can only partially satisfy these requirements. In other words, perfect competition refers to ideal market structures that are extremely rare in reality. However, it makes sense to study the theoretical concept of perfect competition for the following reasons. This concept allows us to judge the principles of functioning of small firms existing in conditions close to perfect competition. This concept, based on generalizations and simplification of analysis, allows us to understand the logic of firm behavior.

Examples of perfect competition (with some reservations, of course) can be found in Russian practice. Small market traders, tailor shops, photo studios, auto repair shops, construction crews, apartment renovation specialists, farmers at food markets, and kiosk retail trade can be regarded as the smallest firms. All of them are united by the approximate similarity of the products offered, the insignificant scale of the business in terms of market size, the large number of competitors, the need to accept the prevailing price, i.e., many conditions of perfect competition. In the sphere of small business in Russia, a situation very close to perfect competition is reproduced quite often.

The main feature of a perfect competition market is the lack of control over prices on the part of the individual manufacturer, i.e., each firm is forced to focus on the price set as a result of the interaction of market demand and market supply. This means that the output of each firm is so small compared to the output of the entire industry that changes in the quantity sold by an individual firm do not affect the price of the product. In other words, a competitive firm will sell its product at the price already existing in the market. As a consequence of this situation, the demand curve for the product of an individual firm will be a line parallel to the x-axis (perfectly elastic demand). This is shown graphically in the figure.

Since an individual producer is not able to influence the market price, he is forced to sell his products at the price set by the market, i.e., at P 0.

Perfectly elastic demand for a product competitive seller does not mean that the firm can indefinitely increase production at the same price. The price will be constant to the extent that normal changes in the output of a single firm are small compared to the output of the entire industry.

For further analysis, it is necessary to find out what will be the dynamics of the indicators of gross and marginal income (TR and MR) of a competitive company depending on the volume of production (Q), if the company sells any volume of production at a single price, i.e. P x = const . In this case, the TR graph (TR = PQ) will be represented by a straight line, the slope of which depends on the price of products sold (P X): the higher the price, the steeper the slope the graph will have. In addition, a competitive firm will face a marginal revenue schedule parallel to the x-axis and coinciding with the demand schedule for its product, since for any value of Q x the value of marginal revenue (MR) will be equal to the price of the product (P x). In other words, a competitive firm has MR = P x. This identity occurs only under conditions of perfect competition.

The marginal revenue curve of a perfectly competitive firm is parallel to the x-axis and coincides with the demand schedule for its product.

The perfectly competitive market model is based on four main conditions (Figure 1.1). Let's consider them sequentially.

Rice. 1.1. Conditions of perfect competition

1.Product homogeneity. This means that the products of firms in the minds of buyers are homogeneous and indistinguishable, i.e. These products from different enterprises are completely interchangeable (they are complete substitute goods). More strictly, the concept of product homogeneity can be expressed through the value of the cross price elasticity of demand for these goods. For any pair of manufacturing enterprises it should be close to infinity. The economic meaning of this provision is as follows: the goods are so similar to each other that even a small increase in price by one manufacturer leads to a complete switch in demand for the products of other enterprises.

Under these conditions, no buyer will be willing to pay a price higher to any particular company than he would pay in a competitive bid. After all, the goods are the same, buyers do not care which company they buy them from, and they, of course, opt for cheaper ones. The condition of homogeneity of products actually means that the difference in prices is the only reason why a buyer can choose one seller over another.

2. With perfect competition, neither sellers nor buyers influence the market situation due to small size of the company and large number of market participants. Sometimes both of these features of perfect competition are combined when talking about the atomistic structure of the market. This means that there are a large number of small sellers and buyers in the market, just as any drop of water consists of a gigantic number of tiny atoms.

At the same time, the purchases made by the consumer (or sales by the seller) are so small compared to the total volume of the market, but the decision to reduce or increase their volumes does not create either a surplus or a shortage of goods. The total size of supply and demand simply “does not notice” such small changes.

All of the above-mentioned restrictions (homogeneity of products, large number and small size of enterprises) actually predetermine that with perfect competition, market entities are not able to influence prices. Therefore, it is often said that under perfect competition, each individual selling firm “gets the price,” or is a price-taker.

3. An important condition for perfect competition is absence of barriers to entry and exit from the market. When such barriers exist, sellers (or buyers) begin to behave like a single corporation, even if there are many of them and they are all small firms.

On the contrary, the absence of barriers or freedom to enter and leave the market (industry) typical of perfect competition means that resources are completely mobile and move without problems from one type of activity to another. There are no difficulties with the cessation of operations on the market. Conditions do not force anyone to remain in the industry if it is not in their best interests. In other words, the absence of barriers means absolute flexibility and adaptability of a perfectly competitive market.

4. Information about prices, technology and likely profits is freely available to everyone. Firms have the ability to quickly and efficiently respond to changing market conditions by moving the resources they use. There are no trade secrets, unpredictable developments, or unexpected actions of competitors. Decisions are made by the company in conditions of complete certainty regarding the market situation or, what is the same, in the presence perfect information about the market.

In reality, perfect competition is a rather rare case and only a few markets come close to it (for example, the grain market, securities, foreign currencies). For us, not only the area of ​​practical application of our knowledge (in these markets) is of significant importance, but also the fact that perfect competition is the simplest situation and provides an initial, reference sample for comparing and assessing the effectiveness of real economic processes.

What should the demand curve for the product of a perfectly competitive firm look like? Let us take into account, firstly, that the company accepts the market price, which serves as a given value for the corresponding calculations. Secondly, the company enters the market with a very small part of the total quantity of goods produced and sold by the industry. Consequently, the volume of its production will not affect the market situation in any way and this given price level will not change with an increase or decrease in the output of this firm.

Obviously, in such conditions, the demand for the company’s products will graphically look like a horizontal line (Fig. 1.2). Whether the firm produces 10 units, 20 or 1, the market will absorb them at the same price R.

From an economic point of view, a price line parallel to the x-axis means absolute elasticity of demand. In the case of an infinitesimal reduction in price, the firm could expand its sales indefinitely. With an infinitesimal increase in price, the company's sales would be reduced to zero.

Rice. 1.2. Demand and total revenue curves for an individual firm under conditions

perfect competition

The presence of absolutely elastic demand for a firm's products is considered to be a criterion of perfect competition. As soon as such a situation develops in the market, the company begins to behave like (or almost like) a perfect competitor. Indeed, fulfilling the criterion of perfect competition sets many conditions for the company to operate in the market, in particular, it determines the patterns of income generation.

In an industry, a competitive firm may occupy different position. It depends on what its costs are in relation to the market price of the product that this company produces. IN economic theory the three most general cases of the relationship between the average costs of a company are considered AC and market price R, determining the state of the company (receiving excess profits, normal profits or the presence of losses), which is presented in Fig. 1.3.

In the first case (Fig. 1.3, a) we observe an unsuccessful, inefficient company: its costs are too high compared to the price of the product on the market, and they do not pay off. Such a firm should either modernize production and reduce costs, or leave the industry.

In case 1.3, b the company with production volume Q E achieves equality between average cost and price (AC = P), This is what characterizes the equilibrium of a firm in an industry. After all, the average cost function of a firm can be considered as a function of supply, and demand is a function of price R. So equality is achieved between supply and demand, i.e. equilibrium. Volume of production Q E in this case is equilibrium. Being in a state of equilibrium, the firm earns only accounting profit, and economic profit (i.e., excess profit) is zero. The presence of accounting profit provides the company with a favorable position in the industry.

The absence of economic profit creates an incentive to search competitive advantages, for example, the introduction of innovations, more advanced technologies, which can further reduce the company’s costs per unit of production and temporarily provide excess profits.

The position of a company receiving excess profits in the industry is shown in Fig. 1.3, c. With production volume in the range from Q 1 before Q 2 The firm has excess profit: the income received from selling products at a price R, exceeds the firm's costs (AC< Р). It should be noted that the maximum profit is achieved when producing products in the amount of Q 2 The profit margin is shown in Fig. 1.3, in the shaded area.

However, it is possible to more accurately determine the moment when it is necessary to stop increasing production so that profits do not turn into losses, as, for example, when the output volume is at the level Q3. To do this, it is necessary to compare the marginal costs of the company MS with the market price, which for a competitive firm is also the marginal revenue MR. Let us remember that the income (revenue) of a company is the payments received in its favor when selling products. Like many other indicators, economic science calculates income in three varieties. Total Revenue (TR) name the total amount of revenue that the company receives. Average Income (AR) reflects revenue per unit of products sold, or, which is the same, total income divided by the number of products sold. Finally, marginal revenue (MR) represents additional income received as a result of the sale of the last unit of production sold.

A direct consequence of fulfilling the criterion of perfect competition is that the average income for any volume of output is equal to the same value, namely, the price of the product. The marginal revenue is always at the same level. So, if the established market price for a loaf of bread is 23 rubles, then the bread stall acting as a perfect competitor accepts it regardless of sales volume (the criterion of perfect competition is met). Both 100 and 1000 loaves will be sold at the same price per piece. Under these conditions, each additional loaf sold will bring the stall 23 rubles. (marginal revenue). And the same amount of revenue will be generated on average for each loaf of bread sold (average income). Thus, equality is established between average income, marginal income and price (AR=MR=P). Therefore, the demand curve for the products of an individual enterprise under conditions of perfect competition is at the same time the curve of its average and marginal price.

As for the total income (total revenue) of the enterprise, it changes in proportion to the change in output and in the same direction. That is, there is a direct, linear relationship:

If the stall in our example sold 100 loaves of bread for 23 rubles, then its revenue, naturally, will be 2,300 rubles.

Rice. 1.3. Position of a competitive firm in the industry:

a - the company suffers losses;

b - receiving normal profit;

c - receiving excess profits

Graphically, the total (gross) income curve is a ray drawn through the origin with a slope:

tg=∆TR/∆Q=MR=P

That is, the slope of the gross revenue curve is equal to marginal revenue, which in turn is equal to the market price of the product sold by the competitive firm. From here, in particular, it follows that the higher the price, the steeper the gross income straight line will go up.

Marginal costs reflect individual production cost each subsequent unit of goods and change faster than average costs. Therefore, the firm achieves equality MC = MR, at which profit is maximum, much earlier than average costs equal the price of the product. U the condition of equality of marginal costs to marginal revenue (MC = MR) is production optimization rule. Compliance with this rule helps the company not only maximize profits, but also minimize losses.

So, a rationally operating company, regardless of its position in the industry (whether it suffers losses, receives normal profits or excess profits), must produce only optimal volume of production. This means that the entrepreneur must strive for a volume of output at which the cost of producing the last unit of goods MS will coincide with the amount of income from the sale of this last unit MR. In other words, optimal output is achieved when marginal cost equals the firm's marginal revenue: MS = MR. Let's consider this situation in Fig. 1.4, a.

Rice. 1.4. Analysis of the position of a competitive company in the industry:

a - finding the optimal output volume;

b - determination of profit (or loss) of a company - a perfect competitor

In Figure 1.4, a we see that for this company equality MS=MR achieved upon production and sale of the 10th unit of output. Therefore, 10 units of goods are the optimal production volume, since this volume of output allows maximizing profit, i.e. receive all profits in full. By producing less, say five units, the firm's profit would be incomplete and we would receive only part of the shaded figure representing profit.

It is necessary to distinguish between the profit received from the production and sale of one unit of production (for example, the fourth or fifth), and the total, total profit. When we talk about maximizing profits, we're talking about about receiving all the profit in its entirety, i.e. total profit. Therefore, despite the fact that the maximum positive difference between MR And MS gives the production of only the fifth unit of production (see Fig. 1.4, a), we will not stop at this quantity and will continue production. We are completely interested in all products, in the production of which MS< МR, which brings profit right up to before MC leveling And MR. After all, the market price pays for the production costs of the seventh and even the ninth unit of production, additionally bringing, albeit small, but still profit. So why give it up? We should refuse losses, which in our example arise during the production of the 11th unit of production. Now the balance between marginal revenue and marginal cost changes in the opposite direction: MC > MR. That is why, in order to receive the entire profit in full (to maximize profit), you should stop precisely at the 10th unit of production, at which MS=MR. In this case, the possibilities for further increasing profits have been exhausted, as evidenced by this equality.

The rule we considered for the equality of marginal costs to marginal revenue underlies the principle of production optimization, with the help of which it is determined optimal, the most profitable volume of production at at any price, emerging on the market.

Now we have to find out what it's like position of the firm in the industry at optimal output volume: whether the firm will incur losses or make profits. To do this, let's turn to Fig. 1.4, b, where the company is depicted in full: to the function MS added average cost function graph AC.

Let us pay attention to what indicators are plotted on the coordinate axes. Not only the market price is plotted on the ordinate axis (vertically) R, equal to marginal revenue under perfect competition, but also all types of costs (AC And MS) in monetary terms. The abscissa axis (horizontal) always shows only the output volume Q. To determine the amount of profit (or loss), we must perform several steps.

Step one: Using the optimization rule, we determine the optimal output volume Q opt, in the production of the last unit of which equality is achieved MS = MR. On the graph this is marked by the intersection point of the functions MS And MR. From this point we lower the perpendicular (dashed line) down to the x-axis, where we find the desired optimal output volume. For the company in Figure 1.4, b, equality between MS And MR achieved upon production of the 10th unit of output. Therefore, the optimal output volume is 10 units.

Recall that in perfect competition, the firm's marginal revenue coincides with the market price. There are many small firms in the industry and none of them individually can influence the market price, being a price taker. Therefore, for any volume of output, the firm sells each subsequent unit of output at the same price. Accordingly, the price functions R and marginal income MR match (MR = P), which saves us from searching for the price of optimal output: it will always be equal to the marginal revenue from the last unit of goods.

Step two: let's determine the average cost AC when producing goods in the volume Q opt. To do this, from the point Q opt equal to 10 units, draw a perpendicular upward until it intersects with the function AC, placing a point on this curve. From the resulting point we draw a perpendicular to the left to the ordinate axis, on which the value of costs in monetary form is plotted. Now we know what the average cost is AC optimal production volume.

Step three: determine the amount of profit (or loss) of the company. We have already found out what the average cost is AC for Q opt. Now all that remains is to compare them with the market price R, prevailing in the industry.

Remaining on the ordinate axis, we see that the level marked on it AC< Р. Therefore, the firm makes a profit. To determine the size of the entire profit, multiply the difference between price and average costs (R-AS), component of the profit from one unit of production, for the entire volume of the entire output Q opt:

Firm profit = (R - AC)* Q opt

Of course, we are talking about profit, provided that P > AC. If it turned out that R< АС, then we would be talking about the company’s losses, the amount of which is calculated using the same formula.

In Figure 1.4, b, profit is shown by a shaded rectangle. Please note that in this case the company received not an accounting, but an economic or excess profit, exceeding the costs of lost opportunities.

There is also another way to determine profit(or loss) of the company. Let us remember what can be calculated if we know the sales volume of the company Q opt and the market price R? Of course, the size total income:

TR = P* Q opt

Knowing the magnitude AC and output volume, we can calculate the value total costs:

TC = AC* Q opt

Now it is very easy to determine the value using simple subtraction profit or loss companies:

Profit (or loss) of the company = TR - TS.

When (TR - TS) > 0 the firm makes a profit, but if (TR - TS)< 0 , the company suffers losses.

So, at the optimal output volume, when MC = MR, a competitive firm can make an economic profit (excess profit) or incur losses. Why is it necessary to determine the optimal output volume in case of losses? The point is that if a company produces according to the rule MC = MR, then at any (profitable or unprofitable) price that develops in the industry, it still wins.

Optimization benefits is that if the equilibrium price in the industry is higher than the average costs of a perfect competitor, then the firm maximizes profit. If the equilibrium price in the market falls below average costs, then MC = MR firm minimizes losses, otherwise they could be much larger.

What is happening to the company in the industry? V long term? If the equilibrium price established in the industry market is higher than average costs, then firms receive excess profits, which stimulates the emergence of new firms in the profitable industry. The influx of new firms expands the industry's offer. We remember that an increase in the supply of goods on the market leads to a decrease in price. Falling prices “eat up” the excess profits of firms.

Continuing to decline, the market price gradually falls below the average costs of firms in the industry. Losses appear, which “expels” unprofitable firms from the industry. Note: those firms that are unable to implement cost-cutting measures leave the industry, those. ineffective companies. Thus, excess supply in the industry is reduced, while the price on the market begins to rise again, and the profits of companies capable of restructuring production increase.

Thus, in the long term industry supply changes. This occurs due to an increase or decrease in the number of market participants. Prices move up and down, each time passing through a level at which they are equal to average costs: P = AC. In this situation, firms do not incur losses, but also do not receive excess profits. Such long term situation called equilibrium.

In conditions of equilibrium, when the demand price coincides with average costs, the firm produces products according to the optimization rule at the level MR = MS, those. produces the optimal volume of goods. In the long run, equilibrium is characterized by the fact that all the parameters of the firm coincide: AC = P = MR = MS. Since a perfect competitor always P=MR, That equilibrium condition for a competitive firm the industry is about equality AC = P = MS.

The position of a perfect competitor when equilibrium in the industry is achieved is shown in Fig. 1.5.

Rice. 1.5. Equilibrium of a perfect competitor firm

In Figure 1.5, the price function (market demand) for the company’s products passes through the intersection point of the functions AC And MS. Since under perfect competition the firm's marginal revenue function is MR coincides with the demand (or price) function, then the optimal production volume Q opt corresponds to the equality AC = P = MR = MS, which characterizes the position of the company in the conditions equilibrium(at point E). We see that in long-term equilibrium the firm receives neither economic profit nor loss.

However, what happens to the company itself? in the long run? Long term LR(from the English Long-run period) fixed costs of the company FC increase with the expansion of its production potential. In this case, changing the scale of the company using appropriate technologies gives the effect of economies of scale. The essence of this economies of scale is that in the long run the average cost LRAC having decreased after the introduction of resource-saving technologies, they cease to change and, as output increases, remain at a minimum level. Once economies of scale are exhausted, average costs begin to rise again.

The behavior of average costs in the long term is shown in Fig. 1.6, where economies of scale are observed when production increases from Qa to Qb. Over the long term, the firm changes its scale in search of the best output and lowest costs. In accordance with the change in the size of the company (volume production capacity) its short-term costs change AC. Various options for the scale of the company, shown in Fig. 1.6 in the form of short-term AC, give an idea of ​​how a firm's output may change in the long run L.R. The sum of their minimum values ​​is the long-term average costs of the company - LRAC.

Rice. 1.6. Long run average cost of a firm - LRAC

What is the best size for a company? Obviously one at which short-run average costs reach the minimum level of long-run average costs LRAC. Indeed, as a result of long-term changes in the industry, the market price is set at the minimum LRAC level. This is how the firm achieves long-run equilibrium. In conditions long-term equilibrium the minimum levels of the firm's short-term and long-term average costs are equal not only to each other, but also to the price prevailing in the market. The position of the firm in a state of long-term equilibrium is shown in Fig. 1.7.

Imperfect competition is an economic phenomenon, a market model in which manufacturing firms have the opportunity to have a real influence on the price of a product. On the other hand, there is the concept of perfect competition. This economic model is a system characterized by an infinite number of buyers and sellers, homogeneous and divisible products, high mobility of production resources, equal and complete information access of all participants to the price of products, goods, and the absence of any barriers to entry and exit to the market. Violation of at least one of these conditions theoretically means imperfect competition.

It is clear that achieving the conditions pure competition almost impossible, while imperfect competition is a widespread phenomenon.

Imperfect competition as an economic phenomenon

Based on the properties inherent in the conditional model of perfect competition, it is possible to determine what features are inherent in imperfect competition and how they manifest themselves in real market conditions.

This structure is characterized by various kinds of barriers that limit entry into and exit from a certain market sector. There are restrictions on product price information. The product itself is either unique, or its properties are differentiated compared to others, which leads to the ability of manufacturers and sellers to control prices for it: to inflate it, to keep it at a certain level. The goal is to maximize profits.

A striking example of imperfect competition are natural monopolies - firms whose activities are related to the supply of energy resources (electricity, gas) to the population. With low costs, such monopolists can set any price for their products in the future, but the entry barriers to this market for new firms are insurmountably high.

The characteristic features of market relations under imperfect competition are thus defined quite firmly:

1. Monopolies, small and medium business are present on the market at the same time. They compete with each other, but monopolists, to one degree or another, have an advantage by regulating prices. This applies to both buyers and sellers of the product.
2. Imperfect competition in the future is aimed at monopolizing the market (sales, raw materials, market work force etc.), in contrast to perfect, which is characterized by the main goal - the sale of goods.
3. The process of competition captures not only sales markets (retail, wholesale), but also production. Innovative developments in the manufacturing sector are becoming a method of fighting competitors. The purpose of their implementation is to reduce production costs.
4. Various methods of competition are used: from the use of price levers, as the most obvious, to non-price ones, aimed at improving the properties of the product, improving marketing and advertising policies. Non-economic methods are also used, which are usually classified as unfair competition.

Forms of struggle for markets with imperfect competition have the following characteristics:

• price– reduction in prices for products, reduction in costs in the production and sales process, manipulation of pricing, price maneuvers designed to attract buyers;
• non-price– emphasis on product quality, attracting customers through various promotions, offering more goods or services for the same price, non-standard advertising campaigns;
• non-economic– industrial, economic espionage, bribery of responsible persons, etc.

Imperfect competition in all its diversity was considered in the works of E. Chamberlin, J. Hicks, J. Robinson, A. Cournot.

Forms of imperfect competition

Oligopoly characterized by a fairly limited number of sellers of goods or services (communication services market). Oligopsony— a fairly limited number of buyers (the labor market in small towns). At monopolies There is only one seller on the market (gas supply). At monopsony— the only buyer (sale of heavy weapons).

At monopolistic competition There are a large number of manufacturers and sellers in the market sector, selling similar in properties, but not identical goods (most often found in retail trade, consumer services sector).

Experts conduct comparative analysis these forms in the context of four market factors:

• number of sellers (manufacturers);
• market product differentiation;
• opportunities to influence prices;
• entry-exit barriers.

For example, in the case of a monopoly, there is only one quantitative indicator, prices are completely controlled, products have unique qualities, and barriers to entry into the market are very high, etc.

Labor market

Imperfect competition in the labor market is a complex phenomenon that includes several important factors. Note that this market sector is most susceptible to regulation in order to minimize the negative consequences of an “imperfect market”.

Regulating factors of the labor market:

1. State. Legislatively regulates the level wages, preventing it from completely falling under the influence of market processes (income indexation, establishing a minimum wage, etc.).
2. Trade union organizations. Direct efforts to increase the level of wages for workers in the industry and region, prepare and carry out the signing of agreements between trade unions and employers - market participants, in the indicated direction.
3. Large firms, corporations. They set the level of remuneration for specialists, which they retain for a long time. Not interested in frequent revision of employee pay levels.

Market laws in relation to the labor market work in a special way. The sale of labor, skills and abilities is usually secured by a long-term employment contract, which provides job security to the employee, despite fluctuations in supply and demand. In addition, individual employment contract or the agreement cannot contain conditions worse than those enshrined in the collective agreement or labor legislation.

In this case, the seller receives job guarantees and is removed from market relations for the duration of the contract with the buyer.

The presence of restrictions on worse conditions in comparison with a collective agreement does not allow the employer to endlessly worsen the conditions of individual agreements by choosing the most “accommodating” sellers. This factor is most significant if there is no trade union organization.

Imperfect competition and government regulation

Imperfect competition, being far from ideal models for building an economy, has its negative aspects and consequences: rising prices for products that are not justified by increased costs, an increase in production costs themselves, inhibition of progressive trends, a negative impact on competitiveness on the scale of world markets, and finally, inhibition of development economy.

At the state, government level, there are always administrative barriers for market participants, for example, exclusive rights that the state grants to a particular company.

On a note! Regulatory barriers can be expressed not only in government regulation as such, but also in the possession of the right to rare natural resources, progressive scientific, technical developments, confirmed by patent, high level starting capital required to enter the market sector.

At the same time, the state, realizing the global danger of market monopolization, is fighting it. Antimonopoly regulatory measures are a package of antimonopoly legislation that is constantly being improved and takes into account market trends. On the basis of it, administrative antimonopoly control of markets is carried out by authorized state antimonopoly structures. An effective mechanism for influencing monopolists is being developed.

Control is represented by a set of financial sanctions, the organizational mechanism does not affect the monopolists themselves, destroying them as a market phenomenon, but indirectly - by supporting small and medium-sized businesses, reducing customs duties etc. Legislative regulation often directly prohibits certain economic steps that contribute to the formation of even larger monopolies, for example, the merger of large firms in a certain market sector.

Results

1. Imperfect competition, as opposed to a perfect, ideal model, exists in real market structures modern economy. The goal of imperfect competition is to capture the market and monopolize it.
2. Forms of imperfect competition differ in the number of buyers and sellers in a given market sector. You can conduct a comparative analysis of each form, paying attention to the level of barriers to entry into the market, the ability to influence prices, etc.
3. The labor market in conditions of imperfect competition is subject to many regulatory factors from the state, trade unions, and large companies.
4. The presence of an employment agreement leads to the temporary withdrawal of the seller from the labor market and allows him to be guaranteed stable employment, i.e. demand labor resources which he possesses.

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