The firm earns maximum profit at a production volume of nine units. At a given volume, marginal costs approach marginal revenue (MC = 210; MR = 200).

If we refer to Fig. 6, and at the point of profit maximization draw a tangent to the total cost curve, then it will be parallel to the total income line. This is explained by the fact that the angular coefficient characterizing the slope of the tangent to the abscissa axis reflects the change in the volume of output, that is, marginal costs. Based on the data in the table, as well as the evidence provided, it follows that the firm* maximizes profit, provided that MC = MR. This is the main condition for maximizing profits by a company, no matter what conditions it operates in..

Maximizing the company's profit in conditions of non-compliance perfect competition

Under imperfect competition, as the number of products entering the market increases, the price gradually falls. We can say that each subsequent unit of the company's output under such conditions is sold at a lower price than the previous one. This suggests that the monopolist firm is not interested in producing as much as it wants. a large number of products, since this can significantly reduce the price of its products, which will put the company in an unfavorable economic position. The company cannot also limit its output while significantly raising its price. At high price These products may not find a buyer on the market at all. Consequently, monopolistic enterprises are forced to look for a position in the market that will give them the opportunity to maximize their profits at a certain volume of output and the corresponding price. Having given certain data on the work of a monopolist company, we will analyze the process of formation of total income, marginal and average income, and then compare them with total costs (Table 3).

According to Table 3, we will construct the curves of total revenue (TR), total costs (TC), average revenue (AR) and marginal revenue (MR) - Fig. 8.

When analyzing the above data, it is clear that as a result of a constant decrease in price, total income (TR) first increases from 0 to 25, and then begins to decrease, since the decrease in price is no longer compensated by an increase in production volume.

A constant decrease in price has another consequence - the diminishing nature of average and marginal income. Indeed, under conditions of imperfect competition, each additional unit of product sold brings an average income less than the previous one. Figure 8 shows the decreasing pattern of AR and MR, with MR decreasing at a faster rate than AR, although initially at minimum output (a change in Q from 0 to 1) they are equal. Average income takes a value of zero when total income is also zero, while MR crosses the x-axis at a maximum of TR.

By combining the graph of total costs and total income, three sectors can be distinguished. In the first, TC exceeds TR, so the firm has a negative profit, or suffers losses (Fig. 8a). At point A, with output equal to two units, TR = TC, so total profit is zero. A firm begins to make a profit once total revenue exceeds total costs. As the latter increase, the difference between TR and TC, having reached its maximum, begins to decrease, and at point C returns to zero. With a further increase in production volume, the company again suffers losses.

It is necessary to explain at what volume of output a monopolist firm maximizes its profit?

When analyzing the work of a particular company, we showed that profit is maximized when MR = MC. This rule also applies to a monopolist. Table 3 shows that TPr reaches its highest value at a production volume of four units. It is at this point that the value of MC comes closest to MR, and on the graph (Fig. 8a) the slope of the tangent at point B is equal to the slope of the tangent to the total cost curve at point C. Consequently, it is at this volume that the firm, under conditions of imperfect competition, maximizes your profit.

Figure 8 - Maximizing a company's profit under conditions of imperfect competition

This approach to determining the point of profit maximization is not the only one. With this approach, the analysis of many indicators of the company’s performance remains behind the scenes; in particular, indicators of average values, such as average total costs (ATC) and average variable costs(AVC). There is no possibility of analyzing the behavior of the company when the price changes, which is very important for a monopolist company. Determining the maximum point of a firm under imperfect competition by comparing the total income and costs of the firm does not answer what the price will be.

A more detailed analysis of the company’s work occurs with a different approach, when the point of profit maximization is determined through the maximum and average values ​​that characterize the activity of the enterprise in changing market conditions.

Lecture 7. Types market structures. Competition. Perfect competition

IN Currently, there are five models of market economies used in different countries: American, German, French, Swedish, Japanese. Some countries used planning experience in Russia when developing their models. Each model includes different kinds markets. Analysis of their features is necessary for successful formation Russia has its own model of a market economy.

The market is a mechanism of interaction between buyers as representatives of market demand and sellers representing market supply: during this interaction, an equilibrium market price is established.

Each participant in market relations acts in his own interests: the seller is interested in selling the product at a price that ensures maximum profit; the buyer wants to buy a product at the lowest price and get the most beneficial effect from its consumption. The transaction can be completed at some intermediate option - the equilibrium price. Market structure is the internal structure, the relationship between individual elements, their share in the total volume. The basis that determines the structure of the market is the forms of ownership operating in the economy (state, private, collective, mixed).

Main subjects economic activity In a market economy there are households, business organizations and the government. The interaction between them takes place in various markets.

IN Depending on the subject of exchange, there are markets for factors of production, markets for final products and services, financial markets, and a market for intellectual products.

Market of goods and services. A characteristic feature consumer market is that prices are actually formed after the production of goods. This market is most susceptible to crises.

Factors of production market. These are essentially three interconnected markets:

∙ capital market;

∙ land use and real estate market;

∙ labor market.

Their relationship is due to the dependence of supply and demand in one on the situation in the other. For example, if prices on the labor market rise and the wage rate increases, then it is more profitable for firms to increase capital, replacing labor with it, which has become more expensive.

A distinctive feature of the factor market is the derived nature of demand. The main goal of business is profit, and capital, labor, land are the conditions necessary for the production of profit. Therefore, the demand for them is generated by the desire of businesses to make a profit.

The financial market is many-sided and diverse, but the subject of purchase and sale is one - money, provided for use in various forms.

There are several ways to classify financial markets:

∙ according to the principle of repayment (debt market and property market);

∙ by the nature of the movement of securities (primary and secondary);

∙ by form of organization (organized market and distributed);

∙ according to the timing of the provision of money.

For example, shares on the principle of repayment belong to the property market, since in this market the right to receive income from investing money is bought and sold.

The shares of the new issue will be sold on the primary market, and their resale will be carried out on the secondary market. Listing large blocks of shares on a stock exchange means they pass through an organized market, but most shares are traded on a distributed, street market.

Market of intellectual products. It includes inventions, innovations, information services: works of literature and art.

In accordance with various criteria, markets are classified: 1. According to the economic purpose of the objects:

o market for consumer goods and services;

o industrial goods market;

o innovation market;

o labor market;

o stocks and bods market;

o housing market, etc.

2. By geographical location:

o local market;

o national;

o global.

3. According to the degree of restriction of competition:

o monopolistic;

o free;

o mixed.

4. By nature of sales:

o wholesale;

o retail.

5. By saturation level:

o equilibrium market;

o excess market;

o scarce market.

6. In accordance with current legislation:

o legal market;

o illegal (black) market.

7. By industry:

o computer;

o bookstore, etc.

The main types of markets are divided into submarkets and market segments. Market segment - in accordance with the principles of segmentation, this is part of the market or

a group of consumers united by common requirements in relation to a given product or service.

For example, based on demographic principles, the market will be segmented by consumer age, gender, family composition, etc.

Competition

Competition - main distinguishing feature market relations. Depending on the methods of its implementation, perfect and imperfect competition are distinguished. A market structure is determined by the conditions under which the firms that form it compete with each other. These conditions include: the number and size of firms, the nature of products, price control and other parameters (Table 1) The degree of influence of an individual seller (buyer) on the market price characterizes perfect or imperfect competition.

Table 1. Market structures

Perfect competition

A market structure is characterized by perfect competition if none of the sellers (buyers) is able to significantly influence the price. Competition is perfect if the following conditions exist:

1. A large number of firms producing homogeneous products

o the size compared to the total market volume is negligible - less than 1%; o insignificant influence on prices on the part of the company;

o agreement between firms is excluded.

2. Homogeneity of products of different enterprises within a given sector. This simple condition is difficult to implement in practice, since exactly identical goods may be heterogeneous for the buyer due to the geographical location of sale, service conditions, advertising, packaging and other characteristics.

3. There are no entry barriers for a new manufacturer to enter the industry and the possibility of free exit from it.

4. Equal access to all types of information. This means that all buyers have complete information about the characteristics of the product and its prices, and manufacturers have information about production technology and prices for production factors.

5. Free flow of capital from industry to industry (mobility of production factors).

6. Rational behavior of all participants pursuing their own interests. Conspiracy in any form is excluded.

In a perfectly competitive market, buyers of standard products or services are indifferent to which company's products they choose. For example, the potato market is very likely to be competitive. Many farmers sell potatoes every day. None of them have more than 1% of the market's daily sales volume. If the share of one of them, due to additionally sold potatoes, increases to 2%, this will not affect the market price in any way.

A firm selling its products in a competitive market is called a competitive firm, since these firms cannot influence the price, they act as price takers.

The demand for the products of an individual company under conditions of perfect competition is absolutely elastic, the demand curve is a horizontal line (Fig. 1).

Figure 1 – Demand under perfect competition

This means that a competitive firm can sell any quantity of a good at or below price P0.

The question arises, how does the firm's horizontal demand line fit in with the negatively sloping demand curve discussed earlier?

The market demand curve does indeed slope downward when all possible combinations of buyer choices in the market are considered. The firm, for its part, can sell any number of units of the product at the equilibrium price. This is exactly what the company’s horizontal demand line shows (Fig. 2).

Figure 2 – Demand

A perfectly competitive firm takes the price of its products as given, independent of the volume of products it sells. But for any price that exceeds P0 even by a small amount, the quantity demanded is 0. The firm will lose its customers if it tries to raise the price above P0. Therefore, when choosing the volume of output that ensures maximum profit, the company will consider its output as a constant value.

Free entry and exit into an industry ensures that there is no agreement between producers operating in the industry to raise prices by reducing output. Any increase in prices can attract new firms into the industry, which will increase supply.

Purely competitive markets solve two problems:

∙ firms involved in production produce a set of products that is most preferable and useful to consumers;

∙ production is carried out at minimal costs to society.

A market is perfectly competitive if all sellers in an industry are perfect competitors and there are many buyers, each of whom has price information, acts independently, and has a relatively small quantity of demand.

Groups of buyers acting together can influence price, and the market changes from perfectly competitive to imperfectly competitive.

Setting the price. If, under conditions of perfect competition, a firm acts as a “price taker,” then a pure monopolist dictates prices. With a downward demand curve for its product, the firm raises or lowers prices, changing the volume of the product produced (Fig. 1).

Figure 1 – Demand curve

Barriers to entry into the industry. The entry of new manufacturers into the industry is blocked legally or economically.

A firm's monopoly position may be “natural,” but it may also be artificially created. It depends on the reasons that give rise to it. There are three reasons:

∙ economies of scale;

∙ control over rare and very important resources;

∙ government restrictions on the influx of new producers.

A typical example of a natural monopoly is municipal utilities. Firms become natural monopolies due to economies of scale.

If it is cheaper to produce any volume of output by one firm than by several, then the industry is a natural monopoly.

Natural monopoly is usually represented large enterprises with highest performance and minimum costs. Long-run average costs reach a minimum only when one firm serves the entire market. Such conditions reflect, for example, automobile, steel industry production.

It should be remembered that the growth of production scales has limits. Diseconomies of scale arise from the difficulty of managing large-scale production. To avoid negative consequences, many large firms prefer to separate from themselves various divisions that have autonomy and competitiveness.

The second reason for the existence of monopolies is the exclusive right of a given company to own some rare and important resource. A textbook example is the activities of the De Beers company, which has long been a monopoly owner of the largest diamond mines in South Africa and therefore controls the world diamond market.

The third reason is that the state creates barriers to the entry of new manufacturers by issuing patents and licenses. Patents played a big role in the development

such companies as Xerox and Eastman Kodak, Sony and Polaroid, etc. The monopoly position secured by a patent serves as a factor in strengthening monopoly power.

A seller has monopoly power over the market if he can increase the price of his product by limiting his own output.

In some cases, the government reserves a monopoly on the production and sale of a product, such as tobacco or alcoholic beverages. An example is the history of the vodka monopoly in Russia.

In a monopolistic market, a situation called a bilateral monopoly or bilateral monopoly is possible.

Bilateral monopoly(bilateral monopoly) - a type of market structure in which there is a confrontation between a single seller and a single (united) consumer. Such a market arises when using electricity, water supply, gas supply, etc.

Perfect competition and pure monopoly are extreme versions of market structures. An intermediate position between them is occupied by monopolistic competition and oligopoly. Monopolistic competition is a type of market structure close to perfect competition, while oligopoly is closer to monopoly.

International monopolies. An international monopoly is a large firm with assets abroad or an alliance of firms of different nationalities that establish dominance in one or more areas of the world economy in order to maximize profits. According to their forms, international monopolies are divided into two main groups: trusts and concerns based on common monopolistic property (transnational or multinational monopolies) and inter-company alliances (cartels and syndicates).

Transnational trusts and concerns – companies owned, controlled and managed by entrepreneurs in one country. They are international in their field of activity. Companies of this type already existed in the 19th century, but their activity truly became widespread in the middle of this century.

Unlike transnational monopolies, the owners multinational trusts and concerns are entrepreneurs from not one, but two or more countries. Their characteristic feature is the international dispersion of share capital and the multinational composition of the company's core.

Monopolization of the economy. Monopolization of the economy – This is the process of firms seizing key positions in the field of production and sales of products, establishing their monopoly. Monopolization of the economy can be of natural or artificial origin.

The lowest forms of monopolization of the economy were temporary agreements on prices - their participants were obliged to sell their goods at uniform prices for a certain period (such agreements were called conventions, pools, rings).

Such agreements can still arise today. But the main forms of economic monopolization are cartels, syndicates, trusts and concerns. A cartel is an association of a number of enterprises in the same industry of production, in which its participants, while maintaining their ownership of the means and results of production, enter into long-term agreements with each other on establishing uniform prices and dividing markets according to

In an oligopoly, two types of behavior of firms are possible: non-cooperative and cooperative. In a non-cooperative model, each firm independently determines its output volume and price level. A competitor's response leads to a price war.

A price war is a cyclical reduction in prices in order to force a competitor out of the market.

The most obvious example of a price war is a duopoly.

Duopoly is the simplest case of oligopoly, where two producers of a given type of product participate. Each manufacturer can independently fully satisfy the effective demand for this product. This market structure is quite common in regional markets and reflects all character traits oligopolies with several participants.

Statistical analysis of the relationships between firms in a duopoly was proposed by A.O. Cournot in 1838. Subsequently, the equilibrium model of competing duopolistic firms was called the “Cournot model.”

The main difference between a perfectly competitive market and an oligopolistic market is the peculiarities of price changes. If in a competitive market prices change continuously depending on fluctuations in supply and demand, then in an oligopoly prices change not so often, usually at certain intervals and by a significant amount. This price stickiness typically occurs when firms face cyclical and seasonal changes in demand. Such fluctuations in demand are taken into account in advance by oligopolistic firms, and the latter try not to change the price of the product,

A respond to changes in demand by increasing or decreasing the volume of goods produced. It is usually beneficial for a firm to change its production volume in the event of demand fluctuations.

A not the price. Changing the price, as a rule, is associated with significant costs - you need to change and print new price lists, spend money on notifying customers, not to mention the loss of customer trust. Keeping prices at the same level is effective only in the short term; it is not applicable for the long term.

The ability to maintain prices in the short term is inherent in the very structure of oligopolistic firms: by planning production, they prepare it in advance for possible drops or increases in demand. Typically, an oligopoly firm has a unique average variable cost curve (Figure 2). With such an AVC curve, the output of goods from value q1 to q2 can be produced at the same level of variable costs. Over this interval, marginal costs also do not change and are equal to the average variables.

Figure 2 - AVC and MC curve under oligopoly conditions in the short term

As we know, according to the law of diminishing returns, if one of the factors of production (capital) remains unchanged (recall that we are considering

short-term period), then as additional units of variable factor (labor) are put into production, average variable costs begin to fall. Then they reach their minimum, and if you do not stop attracting new units of labor, AVC will begin to increase. But this is true if we consider capital as something indivisible. But let’s say a factory uses 25 machines, which are serviced by 50 workers per shift and produce the same product. The daily productivity of 25 machines is 100 units of goods, and the daily payment of one worker is 10 rubles. It is easy to calculate the value of average variable costs:

Let the daily demand for a product drop to 96 units. This means that the firm must reduce the number of workers it hires to 48 people.

But the company does not need to use 48 workers and 25 machines; it will reduce the number of operating machines to 24, and mothball one machine. Since there was a simultaneous change in both a constant and a variable factor, the law of diminishing returns does not apply in this case either

Thus, using divisible fixed factors of production, an oligopolist firm can, at a certain interval (Q1 - Q2) of production, keep the ratio of working units of labor and capital unchanged. In this case, both average variables and marginal costs do not change.

How does an oligopoly firm behave in the short term? Typically, based on market research, firms determine their normal demand curve, which reflects how much of a product, on average, they can sell on the market at each price. Knowing potential demand, they install equipment based on expected variations. The “normal” demand curve is used to determine the initial “normal” price of the product (Fig. 3, a).

Figure 3 - Constancy of prices when demand varies

Since any firm maximizes its profit at MR=MC, and the AVC and MC curves coincide, the corresponding values ​​of price and volume are located at point A of the intersection of the MR and AVC curves. Price P N – “normal” price. It is taken as a basis and

in case of changes in demand (curves D1 and D2 in Fig. 3, b) does not change, and production volumes decrease (to q1) or increase (to q2).

It should be borne in mind that holding prices is advisable if, within certain limits of output, it is possible to keep average variable costs unchanged. When a firm has a classic U-shaped AVC curve, attempts to maintain price and reduce output (when demand falls) will result in losses.

To describe the actions of an oligopolist firm in the long run, it is necessary to know the response of competitors to a possible change in prices by the oligopolist. Since their actions cannot be determined, it has not yet been possible to create a unified theory of the behavior of an oligopoly firm in the long run.

Monopsony

A market situation where many sellers are opposed by one buyer is called monopsony. Monopsony is a demand-side monopoly. This phenomenon is very typical for the resource market.

A special case is when one employer represents 100% of the demand in the labor market. In a monopolized labor market, the wage rate is not determined in advance by anyone. The employer himself determines the price-quantity combination on the labor supply curve, which has a positive slope.

An example of a monopsony can also be the only vegetable and fruit processing enterprise in the region that uses local raw materials.

The state acts as a monopsonist, purchasing grain, weapons, and also being the only customer (consumer) in the field of fundamental research.

quasi-monopoly. A quasi-monopoly is characterized by the presence in the industry of one very major manufacturer and many small firms.

A large manufacturer has the opportunity to influence the market price. By changing the volume of production, he sets the market price at a level that ensures maximum profit. This enterprise is assigned the role of leader in setting prices. The situation of small enterprises resembles a situation of perfect competition: each of the small firms produces such a small part of the total output in the industry that it is not able to change the market price, and therefore perceives it as given from the outside. A classic example of a quasi-monopoly is the situation that developed on the world oil market in the 70s of the twentieth century.

Monopolistic competition

The next type of imperfectly competitive market is monopolistic competition. It has the features of both monopoly and perfect competition.

Monopolistic competition is a market structure that involves the presence of a large number of firms and is characterized by ease of entry into and exit from the industry. However, the products of different companies are differentiated.

Signs monopolistic competition:

Lecture 9. Changes in the position of a competitive firm depending on price

Determining the profit maximization point for a competitive firm through average and marginal values

First of all, let us consider the behavior of a competitive firm over a short-term time interval.

Recall that under conditions of perfect competition, the demand for a firm's products is a straight line parallel to the x-axis, which coincides with the firm's price line, as well as with marginal costs (P = AR = MR). The firm maximizes its profit provided that (MR = MC).

Based on the graph in Fig. 1a, it is obvious that the firm will try to increase profits by increasing the difference between total revenue and total costs by increasing TR and decreasing TC. Let us introduce the curves of marginal (MC) and average total costs (ATC) into graph 1b. The production of each additional unit of output brings additional costs to the firm, while marginal revenue remains constant (MR = P = const). Initially, marginal costs will be very high and will exceed marginal revenue (Figure 1b). The firm will suffer losses, and their maximum value will correspond to the quantity of output Q1 at which marginal costs equal marginal revenue.

With a further increase in production volume, losses will begin to decrease until, at output volume Q2, total income equals total costs (Fig. 1a). At a given volume, marginal costs take on a minimum value. (Fig. 1b). Then total revenue exceeds total costs and the firm begins to make a profit. At the same time, marginal costs begin to increase until they equal the marginal revenue line (output equals Q*). It is at this point that the company receives maximum profit, since the condition MR = MC is satisfied.

Figure 1 – Behavior of a competitive firm

After point C (Fig. 1b), the company can continue to increase its production volume, but its profits will decrease as variable costs increase sharply. The company will operate profitably up to production volumes equal to Q3. At this volume of output (point D in Fig. 1b), average total costs will equal the price and profit will become zero. Increasing production output after Q3 is impractical, since total average costs “eat up” all possible profit. Even though total revenue continues to increase, the firm makes negative profits, or suffers losses. Increasing production volumes in such conditions makes no economic sense. Concluding the analysis of the MC and ATC curves, it should be noted that each of them crosses the firm's demand line twice. As marginal costs decrease, the MC curve intersects the demand line at point A (Fig. 1b), which corresponds to the firm’s maximum losses. As MC increases, the point of equality between MC and MR (Fig. 1b - point C) shows the largest amount of profit. Regarding the average total cost curve, it can be noted that each time it crosses the price line, that is, when ATC = P = MR, means the firm receives zero profit (Fig. 1b - points B and D).

The question arises: how to measure the amount of profit at point C?

Dropping a perpendicular from point C to the abscissa axis (Fig. 2) we obtain the production volume Q*. This perpendicular intersects the ATC line, each point of which gives the cost per unit of output for a changing volume of output. The amount of costs at point K with volume Q* is determined by the projection of this point onto the ordinate axis (p").

If we subtract the average total costs (p") from the price (P), we obtain the profit per unit of production. We also know the quantity of products produced Q*. By multiplying the profit per unit of production (P - p") by the volume of output Q * , we get the total profit:

TP = (P - p") Q ,

where p" = ATC at volume Q*.

Let's make the simplest transformations of this formula: TPr = P · Q* -TC /Q* · Q* = P · Q* - TC

The resulting expression is the formula for total profit, which we used at the beginning of our discussions about profit maximization, only the value of Q* is now known to us.

In Fig. 2b shows that total revenue (TR) can be represented as the area of ​​the rectangle PCQ* O (since one side represents the price P and the other the output Q*). The area of ​​the rectangle p"KQ* O is the total cost of the company, given the quantity of output Q*. If we subtract the area of ​​the rectangle p"KQ* O from the area of ​​the rectangle PCQ* O, then the remaining rectangle PCKp"> is the volume of the total profit of the company.

Figure 2 – Calculation of profit amount

If we try to increase or decrease the volume of output Q*, we will see that in any case the area of ​​the rectangle PCKp" will decrease, that is, the volume of total profit will be less than with the release of Q*. Consequently, general condition maximization

profit is the equality of marginal revenue and marginal costs, in a situation where marginal costs increase.

Change in the position of a competitive firm due to a change in price in the market

The fact that, under perfect competition, the price of a firm's products does not depend on the volume of output does not mean that this price cannot rise or fall at all in the market. The joint actions of all firms producing a given product can affect the level of market prices.

Let us assume that other firms, attracted by the high profitability of work in this industry, quickly reoriented their production and occupied a profitable niche in the market. (Remember that perfectly competitive industries have no barriers to entry!) The volume of this product began to increase rapidly, to which the market responded by lowering the price. Note that the price decreased not for any individual company, but for all companies operating in this industry and producing similar products.

As the market price decreases, the difference between price and average unit costs will decrease. Consequently, the amount of profit received will also decrease. There will come a point when average total cost equals price and economic profit becomes zero (Figure 3). Point E (corresponding to the minimum ATC value) is also the point of intersection with marginal cost.

Figure 3 - Changes in the position of the company due to price changes

It can be determined that when the price decreases, the critical moment for the firm's position will be the state at which P = minATC = MR. With this equality, the company will only recoup its total costs, working without profit.

If a company operating in self-sufficiency mode changes its output volume towards a decrease or increase (Fig. 3, points Q1 or Q2), then given the current market situation, it will begin to receive losses. Consequently, the optimal model of behavior for the company is production at the level Q*, when TPr = O. It is possible that market conditions will worsen and the price will continue its downward trend. The question arises: how long is it economically feasible for a company to remain in this market? Let's assume that the market price has fallen below the ATC minimum (Fig. 4).

Figure 4 – Company losses

The optimal output volume will be determined by the intersection point of MC and MR (Point E in Fig. 4). Drawing a perpendicular through this point, we obtain the required production volume Q* on the x-axis. Raising the perpendicular to the intersection with the ATC curve, we obtain point A, the projection of which onto the ordinate axis will give the value of the average total costs (point p") with volume Q*. If we subtract the average total costs from the price, we will obtain the company's losses from producing a unit of output. Multiplying this value by the output volume we obtain the total losses of the company:

(P - p") Q = -TP

Graphically, the losses that the company will incur will be expressed by the area of ​​the shaded rectangle p"AEP.

Should a firm that is losing money immediately exit the market? Will the closure of the enterprise bring even greater losses?

To answer this question it is necessary to use the graph in Fig. 4 enter the average variable cost curve. Recall that the difference between ATC and AVC is the fixed costs that the company incurs, regardless of whether it produces products or not. In the situation shown in Fig. 4, the company partially covers its fixed costs, the total value of which is determined by the area of ​​the rectangle p"ACp". By completely ceasing its activities in the market at the moment, the company only increases its losses by the area of ​​the rectangle PECp." Therefore, ceasing the company’s activities in a situation where the price on the market is already below the minimum ATC, but even higher than the minimum AVC value, is not economically feasible.

Figure 5 – Position of a competitive firm in the market

In this case, the amount of losses equals the amount fixed costs firm (area of ​​the rectangle p "ABP). The losses are so great that the firm, having covered its minimum variable costs, cannot pay either rent or a bank loan. Any deviation from the output volume Q* further increases the firm's losses. In this case, activity at in this market is meaningless, since it will only bring even greater losses.The company is forced to leave the market.

Lecture 10. Factors of production market and its features Labor market

Labor is a purposeful human activity, with the help of which he transforms nature and adapts it to meet his needs. It is a universal factor of production.

The labor market is a socio-economic form of market relations in the movement of labor; - this is the place where transactions for the purchase and sale of labor are made, the market where, as a result of the interaction of supply and demand, the price of labor is formed.

Peculiarities :

1) the demand for labor is derived from the demand for goods, industrial or personal consumption;

2) In this market, labor services are sold and purchased, because the labor itself cannot be sold.

Buyers in the labor market are firms. They show demand for labor services and there is competition between them for highly qualified personnel.

Demand is the need for labor.

Sellers on the labor market- these are households and there is competition between them for more profitable terms selling the services of your labor.

Supply is the quantity and structure of cash labor resources, practically this is the entire working-age population.

Demand labor depends:

1. On the level of development and structure of the economy.

2. Availability of other factors of production.

3. From goods and services of industrial and personal consumption. 4. From the phase of the economic cycle.

Labor supply depends on:

1. On the population size and its growth rate.

2. From the share of the working-age population.

3. On the length of the working day.

4. On the qualifications of the employee and standard of living.

The relationship between supply and demand characterizes the labor market conditions. If supply and demand coincide, then a equilibrium is the intersection of supply and demand.

Figure 1 – Equilibrium in the labor market

Wage is income in cash received employee for the provision of a certain labor service, this is the price of the production factor “labor”; the standard of living of the population is associated with it.

Wages are the market price of labor power, is defined as the price of labor, the price paid for the use of a unit of labor for a certain time, the main type of income of the working population.

increase, real wages decrease.

In real wages the purchasing power of the nominal

A market economy is characterized by significant differentiation of wage levels.

Differences in pay depend on:

- natural abilities of a person;

- the level of his education and qualifications;

- areas of employment;

- degree of labor mobility;

- wage discrimination;

- level of development of the country;

- the relationship between supply and demand.

Enterprises use two main forms of wages:

Each form has its advantages and disadvantages:

dignity

1) convenient when performing complex tasks and1) intensifies work;

2) creates the prerequisites for quality work

flaws

Today, time-based wages and its variations are more common.

To analyze the labor market under conditions of perfect and imperfect competition, you need to know the following concepts:

- marginal product of labor(МР2) - increase in output in physical terms obtained as a result of the use of one additional unit of labor (hiring one employee);

- the marginal product of labor in money form is calledmarginal money product of labor(MRP2) – increase in monetary income received as a result of the sale of products created by one additional unit of labor (MRP2 = P × MP2);

- marginal labor cost(MRC2) – increase in total production costs as a result of the use of one additional unit of labor; Perfect competition in the labor market presupposes the following principles:

- presenting demand for a certain type of labor big amount competing firms;

The absence of any single association on the part of buyers of labor services (monopsony) and sellers (monopoly);

- the objective impossibility of demand agents (firms) and supply agents (workers) to establish control over the market price of labor, i.e. forcefully dictate wage levels.

Capital market

Capital is a factor of production that can be used to produce other goods and services as a measure of a firm's ownership.

Main forms of capital:

- productive capital – stocks of industrial goods involved in the creation of goods and services;

- money capital – stocks of universal goods in the form of money.

IN capital includes: buildings, structures, communications, machines, equipment, raw materials, semi-finished products.

Peculiarities:

- capital is resources created by people. Difference from the factor of production “land”;

- capital is the items that are used for production;

- the purpose of using capital is to make a profit;

- capital determines the technical side modern economy– material and technical base of production;

- the ability to reproduce itself on an expanding scale, i.e. increase. Part of the company's profits goes to expand production capacity.

The capital of an enterprise is the valuation of the property it owns. It is divided into negotiable and main capital. Part of the capital that is used

Market working capital is a typical resource market. The volume of demand is derivative. Profit maximization is achieved at the point of equality of the marginal money product and marginal costs: MRP=MRC. The fixed capital is production factor durable, therefore, in the fixed capital market, the time factor is of particular importance.

that costs and income associated with investments have different time localizations. To make an investment decision, it is necessary to compare the current value (income today) with the future value (income tomorrow). You can compare amounts of money received at different times using discounting. It makes it possible to compare cash flows received at different times by bringing them to the current period.

TRn = PDV + (1 +i)n

The present value of future income is determined by: PDV = TRn : (1 + i)n ,

TRn ×K d - discount factor Kd =1(1+i)n – current discounted value.

With the help of current discounted value, it is possible to bring into a commensurate form the costs incurred and the income received at different times. This makes it possible to correctly assess the effectiveness of investments and make a choice in favor of the most profitable project. This value depends on three factors:

1) level of expected income;

2) interest level;

3) the value of the investment.

The most universal is the interest rate (i).

Capital market is a market in which, as a result of the interaction of supply and demand, the price of capital is formed in the form of interest income.

Basic elements of the capital market:

- demand for capital;

- supply of capital;

- interest income.

Economic theory connects investment activity with the interest rate in the country.

Figure 2 – Investment demand schedule

The graph shows investment demand, which is inversely proportional to the volume of investment and the interest rate. A decrease in interest to i2 causes an increase in investments made to the level of I2.

The peculiarity of the demand for investment (capital) is:

- the existence of investment demand from trade and industrial enterprises;

- the existence of investment demand from the state.

Knowing the interest rate, you can determine the amount of investment in accordance with the demand curve. The curve offset is determined by:

- level of expected income;

- the value of the investment

The supply of capital is formed by firms and households. Features of the capital offer:

- the basis of capital supply is savings;

- The main supply factors are the formation of savings and the propensity to save.

The decisive factor in favor of savings is percentage value. An increase in the interest rate encourages an increase in savings.

Figure 3 – Capital supply and equilibrium

The graph represents a direct relationship between an increase in the supply of capital investment and an increase in the interest rate. The interaction of supply and demand determines the equilibrium values ​​of investment volumes and prices.

The intersection of the AD and AS curves gives the level of the market interest rate (io).

Interest income– the price paid by the owner of capital for the use of borrowed funds.

Nominal interest rate- cash interest rate current year The real interest rate is the interest rate taking into account inflation.

Natural resources market

In a narrow sense, the production factor “land” refers to land, land areas.

Land is natural resources that are given by nature itself and can be used to produce goods and services.

Natural resources - totality natural conditions, which can be used in the process of creating goods and services. They can be real and potential, renewable and non-renewable.

Land as a factor of production has the following features:

1) unlike other factors, it has an unlimited service life and is not reproducible at will and its quantity is limited;

2) by its origin it is a natural factor, and not a product of human labor;

3) cannot be moved or freely transferred from one industry to another, because it is immovable, therefore, this is the uniqueness of the factor of production;

4) when used in agriculture with rational operation, it not only does not wear out, but also increases its productivity.

Rent is payment for the use of land and other natural resources, the supply of which is constant. The problem of land rent was considered by: A. Smith, A. Marshall. Despite the differences in conceptual approaches, they all emphasize the extraordinary quality of land success. Various climatic features determine the specific use of this factor. The productivity of the land will vary depending on its fertility. Land owners can be:

State; - JSC or corporations; - private person.

These owners receive an income called rent.

Economic rent – income derived from the use of land or any other natural resource, the quantity of which is limited in the long term.

Rent is based on the scarcity of good land. Ground rent does not require the recipient entrepreneurial activity in the field of agriculture. Production costs for land and products are formed not on the basis of socially normal costs, but on the basis of production costs in the worst areas.

Differential rent – it is the income generated by using land according to its quality with higher productivity.

Absolute rent- this is that part of the entrepreneur’s income that is generated by the monopoly of private land ownership. This rent to the land owner is a consequence of the completely inelastic supply of land.

The price of land depends on or is determined by the demand for agricultural products. The demand for land is derived from the demand for food.

It depends on:

- soil fertility;

- location of agricultural plots.

Figure 4 – Demand for land

The demand line for land D has a negative slope. The supply line is vertical to the OX axis, inelastic and constant. Point E is the equilibrium point in the land market. It corresponds to the equilibrium price of land R - this is the equilibrium rent or rent. Therefore, changes in demand can increase or decrease the price of land. The price of land depends on the amount of land rent. The higher the land rent, the more, other things being equal, the price of a given piece of land increases.

The price of land may depend on the interest rate at the time of sale.

Z = (R/i) * 100%; Z is the price of land, R is the annual rent, i is the market rate of loan (bank) interest.

The price of land is capitalized ground rent, the total value of all future rental payments that a particular plot of land is expected to generate.

According to the traditional theory of the firm and the theory of markets, profit maximization is the main goal of the firm. Therefore, the company must choose the volume of products supplied to achieve maximum profit for each sales period. PROFIT is the difference between gross (total) income (TR) and total (gross, total) production costs (TC) for the sales period:

profit = TR - TS.

Gross revenue is the price (P) of goods sold multiplied by sales volume (Q).

Since the price is not influenced by a competitive firm, it can only influence its income by changing sales volume. If a firm's gross revenue is greater than total costs, then it makes a profit. If total costs exceed gross income, the firm incurs losses.

Total costs are the costs of all factors of production used by a firm to produce a given volume of output.

Maximum profit is achieved in two cases:

• a) when gross income (TR) exceeds total costs (TC) to the greatest extent;
• b) when marginal revenue (MR) equals marginal cost (MC).

Marginal revenue (MR) is the change in gross revenue obtained by selling an additional unit of output. For a competitive firm, marginal revenue is always equal to the price of the product:

Marginal profit maximization is the difference between marginal revenue from selling an additional unit of output and marginal cost:

marginal profit = MR - MC.

Marginal costs are additional costs that lead to an increase in output by one unit of a good. Marginal costs are entirely variable costs because fixed costs do not change with output. For a competitive firm, marginal cost is equal to the market price of the product:

The limiting condition for maximizing profit is the volume of output at which price equals marginal cost.

Having determined the limit for maximizing the firm's profit, it is necessary to establish the equilibrium output that maximizes profit.

The maximum profitable equilibrium is a position of the firm in which the volume of goods offered is determined by the equality of the market price to marginal costs and marginal revenue:

The maximum profitable equilibrium under perfect competition is illustrated in Fig. 26.1.

Rice. 26.1. Equilibrium output of a competitive firm

The firm chooses the volume of output that allows it to make maximum profit. At the same time, it must be borne in mind that the output that ensures maximum profit does not at all mean that the largest profit is made per unit of this product. It follows that it is incorrect to use profit per unit as a criterion for overall profit.

In determining the profit-maximizing level of output, it is necessary to compare market prices with average costs.

Average costs (AC) - costs per unit of production; equal to the total cost of producing a given quantity of output divided by the quantity of output produced. There are three types of average costs: average gross (total) costs (AC); average fixed costs (AFC); average variable costs (AVC).

The relationship between market price and average production costs can have several options:

• price is greater than the profit-maximizing average cost of production. In this case, the company makes economic profit, that is, its income exceeds all its costs (Fig. 26.2);
• the price is equal to the minimum average production costs, which ensures the company’s self-sufficiency, that is, the company only covers its costs, which gives it the opportunity to make a normal profit (Fig. 26.3);
• the price is below the minimum possible average costs, i.e. the company does not cover all its costs and incurs losses (Fig. 26.4);
• the price falls below the minimum average cost, but exceeds the minimum average variable cost, that is, the company is able to minimize its losses (Fig. 26.5); the price is below the minimum average variable cost, which means the cessation of production, because the firm's losses exceed fixed costs (Fig. 26.6).

Rice. 26.2. Profit maximization by a competitive firm

Rice. 26.3. Self-sustaining competitive firm

Rice. 26.4. Competitive firm incurring losses

G.S. Bechkanov, G.P. Bechkanova

According to the traditional theory of the firm and the theory of markets, profit maximization will be the main goal of the firm. Therefore, the company must choose such a volume of products supplied in order to achieve maximum profit for each sales period.

PROFIT – ϶ᴛᴏ the difference between gross (total) income (TR) and total (gross, total) production costs (TC) for the sales period:

profit = TR – TS.

Don't forget that gross income– ϶ᴛᴏ price (P) of goods sold, multiplied by sales volume (Q)

Since the price is not influenced by a competitive firm, it can influence its income solely through changes in sales volume. If the firm's gross income is greater than total costs, then it makes a profit. If total costs exceed gross income, the company incurs losses.

Total costs– ϶ᴛᴏ costs of all factors of production used by the firm in the production of a given volume of output.

Maximum profit achieved in two cases:

a) when gross income (TR) exceeds total costs (TC) to the greatest extent;

b) when marginal revenue (MR) is equal to marginal cost (MC)

Marginal Revenue (MR)– ϶ᴛᴏ change in gross income received from the sale of an additional unit of output. It is worth saying that for a competitive firm, marginal revenue is always equal to the price of the product:

Marginal profit maximization is the difference between marginal revenue from selling an additional unit of output and marginal cost:

marginal profit = MR – MC.

Marginal cost– additional costs leading to an increase in output by one unit of good. Marginal costs are entirely variables costs, because fixed costs do not change with output. It is worth saying that for a competitive firm, marginal costs are equal to the market price of the product:

The limiting condition for maximizing profit will be the volume of output at which price equals marginal cost.

Having determined the firm's profit maximization limit, it is critical to establish the profit-maximizing equilibrium output.

Maximum Profitable Equilibrium϶ᴛᴏ such a position of the firm in which the volume of goods offered is determined by the equality of the market price to marginal costs and marginal revenue:

The maximum profitable equilibrium under perfect competition is illustrated in Fig. 26.1.

Figure No. 26.1. Equilibrium output of a competitive firm

The firm chooses the volume of output that allows it to make maximum profit. In this regard, it must be borne in mind that the output that ensures maximum profit does not mean that the largest profit is made per unit of this product. It follows that it is incorrect to use profit per unit as a criterion for overall profit.

In determining the profit-maximizing level of output, it is critical to compare market prices with average costs.

Average costs (AC)– costs per unit of production; equal to the total cost of producing a given quantity of output divided by the quantity of output produced. Distinguish three type of average costs: average gross (total) costs (AC); average fixed costs (AFC); average variable cost (AVC)

The relationship between market price and average production costs can have several options:

Pricing in conditions various types market structures

1. Goals of the company. Equilibrium of an arbitrary firm.

2. Market power and types of market structures.

3. Pricing behavior of a company under conditions of perfect competition

4. Determination of effective price and production volume in a monopolized market.

5. Pricing in conditions of monopolistic competition.

6. Pricing under oligopoly conditions.

Company goals

Firm represents a manufacturer who offers its product to the market, where the most important equilibrium factor is the total demand of consumers.

When discussing the goals of the company and its pricing behavior, we will distinguish between short-term and long-term periods. IN short term enterprises cannot enter or leave the industry, or change the applicable production capacity. Expansion of production is possible only by changing the volume of use of variable resources. The total number of enterprises on the market remains unchanged. Long term is sufficient for new firms to enter the industry if there is an opportunity to earn higher profits, or to exit the industry if the firm begins to incur losses.

Within theoretical analysis The equilibrium of the firm is assumed that there are no inventories of finished goods, that is, the volume of production is equal to the volume of sales.

In the short run, the firm's goal is to profit maximization , that is, the difference between revenue and costs (TR – TC). If a firm's profit is negative, then the excess of costs over revenue is called losses, and the company's goal in this case is to minimize costs.

As long as the expansion of production ensures a faster increase in income compared to the increase in costs, the company will increase production. The turning point is the moment of equality of marginal costs and marginal revenue. It is precisely the quantity of products at which MR = MC that will be produced by the company. That's what it is firm equilibrium condition . That is, if the output volume that maximizes the firm's profit is achieved, then an increase in it by one will cause an increase in the firm's revenue and its costs by the same amount. You can reformulate the equilibrium condition of the firm in another way: The firm's total profit is maximized when its marginal profit is zero..

The volume of production at which marginal revenue equals marginal cost (marginal profit equals zero) is called optimal release point .

Market power

Market power of a firm is its ability to independently change in one direction or another the equilibrium price and equilibrium sales volume.

From the point of view of the presence or absence of market power among firms, its strength and the number of firms that have it, four types of market structure are distinguished.

Perfect competition There is such an organization of the market in which the level of the market price cannot be influenced by any specific seller or buyer. Then each seller can sell, and the buyer can buy, at a given market price, any quantity of products. Conditions of perfect competition:

1. Product Uniformity. All its units are absolutely identical in the minds of buyers and they have no way to recognize who exactly produced this or that unit. (Impersonality of the market)

2. Smallness and multiplicity. The volumes of demand and supply of even the largest market entities are negligible relative to the scale of the market, and their changes do not affect the market price of products. The absence of formal or informal agreements between sellers or buyers with the aim of gaining monopoly advantages.

3. Freedom of entry and exit. There are no legal or financial barriers to entry into the industry. The production of products is not subject to any patents or licenses. Entry into and exit from the industry does not require any significant initial or liquidation costs. Mobility of production resources.

4. Perfectly informed. Information is disseminated instantly and costs market participants nothing. Law of one price.

Because a perfectly competitive firm's sales are only a small fraction of its total market supply, a reduction or increase in the firm's production volume will not affect the market price of the product. That is, a competitive firm is price taker .

Monopolistic competition is a form of market structure in which all the features of perfect competition are present, with the exception of product homogeneity. That is, different products are sold on the market that are close substitutes for each other. In other words, the product on the market differentiated . There are real and artificial product differentiation. Real differentiation product involves differences in its physical characteristics, such as the taste of cookies, the speed of action of medicine, the quality of the TV image, etc. Artificial differentiation suggests differences in packaging, trademark, image. With any of these methods of differentiation, advertising plays an important role in the firm's acquisition of market power. It is important to understand that even completely homogeneous products in real life always differentiated in terms of the location of the source of sale and/or services accompanying their sale (for example, the identity of the seller or the presence/absence of a queue at the cash register).

Oligopoly There is a market situation in which several large sellers are able to influence the market price of a product by reducing or increasing output. Oligopolistic structures can arise in industries producing both standardized (aluminum, copper) and differentiated (automobiles, Appliances) goods.

In both oligopoly and monopolistic competition, the market power of a firm is limited - it can influence the price of products, but the extent of this influence depends on the interchangeability of products (in monopolistic competition) or on the actions of other firms in the market (in the case of oligopoly).

Monopoly There is a market situation in which there is a single seller of a product that has no close substitutes. In this situation, the monopoly is the only company that satisfies the market demand of buyers for a given product, so it can independently set the price for it, guaranteeing itself a sales volume corresponding to this price.

Possible reasons for monopoly:

1. Significant economies of scale due to the high share of fixed capital in costs. In this situation, firms with smaller production volumes are forced to produce at higher costs, and therefore lose in price competition to the monopolist.

2. Ownership of raw materials allows a monopoly to prevent competitors from accessing sources of raw materials.

3. Product patents and licenses or technological process block competitors from entering the industry for a certain period of time.

4. Research work that creates technical innovations.

5. Exclusive rights obtained from the government.

6. High transport costs, contributing to the formation of isolated local markets.

7. Unfair methods of competition, even criminal (anti-advertising, pressure on suppliers and banks in order to deprive competitors of raw materials and credit, price dumping, poaching personnel, forced takeover of competitors, etc.)

Profit maximization under perfect competition

Demand for the company's product is the maximum possible sales volume of this firm (in units of product) at a certain price. The demand for the product of an individual firm under conditions of perfect competition is completely elastic(See Fig. 4.1.)

p

D (market demand)

Rice. 4.1. Demand for a competitive firm's product

Since the price of a competitive firm’s products is set externally and does not depend on the volume of production, then total (gross) income firm (TR) will be equal to the product of price and quantity of production ( TR= pQ). Average firm income (gross revenue divided by number of units sold, AR) under conditions of perfect competition will be equal to the price of the product. Marginal Revenue or marginal revenue (increase in income associated with the production of each additional unit of output, M.R.) will also be equal to the price.

Therefore, for a perfectly competitive firm, the equilibrium condition is that marginal costs equal the price of the product (MC = p).

Now imagine a situation in which the market price turns out to be lower than the average cost of producing a unit of the firm’s output, that is the company is unprofitable .

In the short run, a firm cannot exit the industry even if it is making losses (fixed costs are constant), so it will prefer to maintain positive output as long as it covers at least part of its fixed costs. That is, it is advisable for an unprofitable firm to stop production when the market price of the product falls below the minimum value of average variable costs. In other words, the minimum individual supply price of a competitive firm is equal to the minimum average variable cost.

If the market price exceeds average variable costs, the firm will produce in pursuit of the goal of maximizing profits (minimizing losses). The condition for this, as we remember, is that marginal costs are equal to the market price of the product. That is, the marginal cost function establishes a one-to-one correspondence between the price of a product and the quantity supplied.

Thus, competitive firm's supply curve represents the part of the marginal cost curve that lies above the minimum of average variable costs (see Fig. 4.2.)

As can be seen from Fig. 4.2., at a price less than average variable costs (

p 2), the firm makes a profit.

P MC ( S)

Rice. 4.2. Proposal from a perfectly competitive firm

IN long term A firm may exit the market if it experiences sustained losses over a long period of time. On the other hand, if the industry provides high profits, this can attract new manufacturers who, by entering the industry, will increase the supply of these products. Thus, important factor setting the price of products in a perfectly competitive market in the long run is a change in the number of enterprises seeking maximum profits in a given market.

Perfect competition presupposes equal access of all firms to resources, including technological information. Therefore, in the long run, each firm can choose and implement the most efficient production option, as a result of which the total cost curves of all firms in the same industry will be identical. That is, microeconomic theory assumes that in the long run the industry consists of the same, or typical firms

The process of setting price in a perfectly competitive market in the long run will look like this. If initially the price exceeds average cost (marginal revenue is greater than marginal cost), then the opportunity for economic profit will attract new firms to the industry. But this will help increase the supply of products and reduce prices to the marginal cost level. In the case when the price is initially below marginal costs, the inevitability of losses will lead to the outflow of firms from the industry, the total volume of supply will decrease, which, with a constant volume of demand, will cause the price to increase to the level of average costs.

From all this we can conclude that the condition for equilibrium of a perfectly competitive market in the long run is the equality of average costs to the price or average income of each individual firm, and of all firms together. That is The profit of a perfectly competitive firm in the long run is zero.. This does not mean that entrepreneurs have no incentive to continue their business. The company makes a profit ( normal profit ), which is payment for the entrepreneur’s labor efforts, commercial risk, etc. This profit in the long run is equal to opportunity costs, that is, the income that the entrepreneur would receive if he invested his resources in the most profitable of all other possible activities. The equality of the received profit to the opportunity costs means zero economic profit.

If a company introduces advanced technology at lower costs than its competitors, then it will receive excess profits (positive economic profit) for some time. Over time, other firms will also adopt this technology, as a result of which the market price will decrease and the economic profit of the innovating firm will again become zero.

Behavior of a monopoly

The monopolist is the only producer of a given product on the market, so the demand curve for its product coincides with the market demand curve and has a negative slope.

The demand curve for a monopolist's product is for him both a price curve and an average income curve. Average income and price decrease as output increases.

The marginal revenue curve of the monopolist lies below the demand curve, since by reducing the price of products to increase sales, the monopolist is forced to reduce the price of all units of goods sold, and not just the next one.

Let, for example, a monopolist produce 100 units of product per day and sell them for 400 rubles. for a unit. Let, by reducing the price by 1 rub. he will be able to increase production and sales of products by 1 unit per day. Then his daily marginal revenue will be (399 – (400-399)*100 = 299), that is, 100 rubles. less than the new price.

Graphically, the marginal revenue curve starts from the same point as the demand curve, but its slope is twice as steep. Therefore, with a linear demand function, the marginal revenue line divides any price line and segment OB on the output axis in half(See Fig. 4.3.)

p

Rice. 4.3. Monopoly equilibrium: the case of positive profits.

Despite all the differences in positions, the monopolist, just like a perfectly competitive firm, makes a decision on the volume of production, leveling the marginal product and marginal costs (see Fig. 4.3.) However, unlike a perfectly competitive firm, the marginal revenue of the monopolist less price. Therefore, the monopolist's profit-maximizing price will always be higher and the corresponding output lower than under perfect competition.

Price discrimination is one of the ways to expand sales markets under monopoly conditions. By producing products in smaller volumes and at a higher price compared to a perfectly competitive market, the monopolist thereby loses part of consumer demand. This part potential buyers could have purchased the product at a lower price. In some cases, a monopoly has the ability to set different prices for the same product for different groups of buyers. Price discrimination occurs when a given product is sold at more than one price and these price differences are not justified by differences in costs.

Conditions under which price discrimination is possible:

· The buyer, having purchased the product, does not have the opportunity to resell it.

· It is possible to divide all buyers of a given product into segments, the demand for which has different degrees of elasticity.

Obviously, the most favorable conditions for price discrimination occur in service markets (which are virtually impossible to resell). In markets for material goods, price discrimination is relatively easy to implement when different markets are separated from each other by large distances or high tariff barriers, so that the resale of goods from a “cheap” to an “expensive” market is associated with significant additional costs.

There are three types, or three degrees of price discrimination .

Price discrimination of the first degree (perfect price discrimination) occurs when each unit of a commodity is sold at its demand price, so that the prices at which the commodity is purchased are different for all buyers. In its pure form, perfect price discrimination is difficult to implement, since for this the monopolist needs to have perfect information about the demand functions of all possible consumers of its product. Some approximation to perfect price discrimination is achievable when there are a small number of buyers, when each unit of goods is produced to individual order.

Price discrimination second degree occurs when different units of a good are sold at different prices, but each consumer who buys the same amount of the good pays the same price. In practice, such discrimination often takes the form discount or discounts. Examples of such discounts:

ü volume discounts– the higher the supply volume, the cheaper each unit of product;

ü cumulative discounts– a monthly transport ticket is relatively cheaper than single tickets; the price of an annual subscription to the magazine is relatively lower than its price in retail sales;

ü price discrimination over time– different prices for morning and evening cinema sessions; different rates at hotels in the summer and winter seasons, etc.;

ü charging a subscription fee in combination with proportional payment for the quantity of goods (services) purchased.

Third degree price discrimination assumes that products are sold to different persons at different prices, but each unit of goods purchased by an individual entity is paid by him at the same (independent of the volume of purchase) price. This type of price discrimination is often called market segmentation.

Introduction 3

1 Profit as the goal of the company. Types of profit 5

2. Profit maximization in conditions of perfect competition 10

2.1. Short term 10

2.2 Long-term period 14

3. Profit maximization in conditions of imperfect competition 18

3.1. Monopoly 18

3.2. Oligopoly 25

3.3. Monopolistic competition 30

Conclusion 35

List of sources used 37

Introduction

Profit is the monetary expression of the main part of cash savings created by enterprises of any form of ownership. How economic category, it characterizes the financial result of the enterprise’s entrepreneurial activity. Profit is an indicator that most fully reflects production efficiency, the volume and quality of products produced, the state of labor productivity, and the level of costs. At the same time, profit has a stimulating effect on strengthening commercial calculations and intensifying production under any form of ownership.

Profit is one of the main financial indicators of the plan and assessment of the economic activities of enterprises. Profits are used to finance activities for the scientific, technical and socio-economic development of enterprises and to increase the wage fund for their employees. It is not only a source of meeting the intra-economic needs of the enterprise, but is becoming increasingly important in the formation of budgetary resources, extra-budgetary and charitable funds.

The problem of maximizing profit is one of the main problems for any entrepreneur, since profit is the main goal of entrepreneurial, including production, activity. Thus, the functioning of enterprises and industries is aimed at obtaining the greatest profit through the production and sale of goods and services in demand by the market. This is how the needs of the population are best met.

Making a profit and increasing it is an economic condition for the successful functioning of industrial enterprises. This is the only way to update fixed assets in a timely manner, expand the scale of production, and create the prerequisites for increasing production efficiency and increasing competitiveness.

In any case, firms that are not closely involved in maximizing profits have little chance of survival. Firms that survive in specific industries place long-term profit maximization as a top priority, regardless of the will and desire of their managers.

The purpose of this work is to study the behavior of firms that maximize their profits under conditions of perfect and imperfect competition. Research objectives: to identify how firms operating in different markets choose the optimal volume of output in the short and long term, what indicators influence their choice, to determine how firms maximize their profits in different situations, to find differences in their behavior.

1 Profit as the goal of the company. Types of profit

In quantitative terms, profit is the difference between total revenue and costs, but if there are two approaches to defining and measuring costs, then the content of the concept of “profit” should be considered in two aspects - accounting and economic.

Accounting profit - is the difference between total revenue and external costs. Let us recall that the latter include explicit, actual costs: wages, costs of fuel, energy, auxiliary materials, interest on loans, rent, depreciation, etc.

In economic theory and practice, the totality of fixed and variable costs is referred to as business costs. Total business costs, together with normal profit, constitute economic costs (costs). The difference between total revenue and economic costs is economic, or net profit.

Economic profit there is a certain excess of total income over economic costs. Unlike accounting profit, which takes into account only external costs, economic profit is determined by subtracting both external and internal costs (including normal profit) from revenue. External and internal costs add up to economic, or opportunity, costs. This means that when determining the volume of real profit, one should proceed from the price of the resource that its owner would receive if it were used at its best.
Economic costs allow us to understand the difference between the approaches of an accountant and an economist to assessing the performance of a company. The accountant is primarily interested in the results of the company's activities for a certain (reporting) period. He analyzes the past and existing experience in the company's activities. An economist, on the contrary, is interested in the prospects for the company’s activities, its future. That is why he closely monitors the price of the best alternative for using the resources at his disposal.

The presence of economic profit interests the manufacturer in this particular area of ​​business. At the same time, it encourages other firms to enter this field. This helps to expand the circle of producers, increase supply and, for reasons known to us, reduce market prices. The latter leads to a decrease (and possibly to the disappearance) of economic profit, which causes the outflow of a number of firms from this area of ​​​​business and their attempts to penetrate into other areas. A decrease in the number of producers will lead to a reduction in supply and, as a result, to an increase in market prices. Economic profit will become positive again and will grow.

For a company, the issue of profit margin is important. There are absolute and relative profit indicators. As for the absolute amount of profit, it is expressed by the concept of “mass of profit”. The amount of profit in itself does not mean anything, so this value should always be compared with the annual turnover of the company or the amount of its capital. An indicator of the dynamics of profit, a comparison of its value in a given year with the corresponding value of previous years, is also important.

A relative indicator of profit is the rate of profit (profitability), demonstrating the degree of return on production factors used in production. There is a distinction between the profitability of production and the profitability of a specific type of product.

Profitability of production shows the degree of return on the total capital advanced and is expressed by the formula

Rpr = Pb / Kav 100% or Rpr = Pb / (OPF + MOS) 100%,

where Rpr is production profitability, Pb is profit (balance sheet); Kav - all advanced capital, OPF - fixed production assets; MOS - material circulating assets.

An indicator characterizing the efficiency of a company’s current costs is product profitability, calculated using the formula

Rotd.pr = Pb / Sp 100%,

where Rotd.pr is the profitability of a particular type of product; Cn - cost of production (full).

Here the cost form of production efficiency is expressed, since the ratio of the production result to current costs is given. This formula shows the degree of profitability of the production of a particular product.

The main ways to increase profitability are to reduce the cost of elements of advanced capital and reduce current production costs. Ultimately, the condition for both is the widespread use in production of the results of scientific and technological progress, leading to an increase in the productivity of social labor and, on this basis, a reduction in the cost of a unit of resources used in production.

The essence of profit is most fully manifested in its functions: accounting, incentive and distribution. The essence accounting function profit is that profit is the most important criterion for the effectiveness of a company’s business activities. The main indicators that reveal this function are weight and rate of profit (profitability). Stimulating function profit is that it (profit) is a powerful generator of the economy. It is the desire to increase profits that underlies most innovations. The essence distribution function profit lies in the fact that it serves as a source of accumulation and development of production, a source of material incentives for workers. In a market economy, profit is the basis for the development of a business firm.

Profit maximization is the choice by the company of a price for a product that will ensure maximum profit and cash flow and maximum cost recovery. The task of maximizing profit is to determine the position of the dynamic equilibrium between supply and demand, to find the optimal combination of sales volume and price for manufactured products. In this situation, the company has no choice but to choose the sales volume that would maximize its profit. It is believed that the sales volume that will provide maximum profit will be optimal.

The optimal output volume is the volume that allows the firm to obtain maximum profit. The company makes a profit by selling its own products. Thus, the company must decide three questions:

Is this product worth producing?

If so, to what extent?

What profit will be received from this?

2. Profit maximization under perfect competition

In economic theory, perfect competition is a form of market organization in which all types of rivalry are excluded, both between sellers and between buyers. Thus, the theoretical concept of perfect competition is actually a negation of the usual understanding of competition in business practice and everyday life as intense rivalry between economic agents. Perfect competition is perfect in the sense that with such a market organization, each enterprise will be able to sell as many products as it wants at a given market price, and neither an individual seller nor an individual buyer will be able to influence the level of the market price.

When determining a market behavioral strategy, simplifications are usually allowed: it is believed that the company produces one type of product, although in reality it produces a number of products; it is assumed that the sole goal of the company is to maximize profits from the production of a given product in both the short and long term, although in reality this is not the case, since maximizing income (in order to achieve economic growth) or maximizing the level of dividends in order to create company image, etc.

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