There is a powerful factor dictating General terms the functioning of a particular market - the degree of development of competitive relations on it. The mechanisms of competition reach their maximum degree of development in a perfectly competitive market. The terms "perfect competition", " perfect market"Introduced into scientific circulation in the second half of the 19th century. Among the authors who first used the concept of "perfect market" is W. Jevons. Representatives of classical political economy, when characterizing market regulation, relied on the concept of free (unlimited) competition, incompatible with any restrictions or monopoly tendencies.

Perfect competition: concept and main features

The nature of the interaction of firms with each other in the market is determined by the type of market (market structure). Market structure - this is a certain type of structure of the industry market with its inherent manifestations of such key characteristics that predetermine the behavior of market participants and equilibrium parameters, such as the number of market agents (sellers and buyers), their awareness and mobility, the type of products produced, the conditions for entering the market and leaving it . Depending on the specific manifestations of these characteristics, it is customary to distinguish four main types of market structures :

1) pure (perfect) competition;
2) monopolistic competition;
3) oligopoly;
4) pure (absolute) monopoly.

They are presented in order of decreasing competition. The last three types of market are referred to by the general term " imperfect competition and will be discussed in the next chapter.

The simplest and most basic type, or model, of the market is the market of perfect competition. Perfect Competition represents an ideal image of competition, in which there are many sellers and buyers with equal opportunities and rights in the market. At the same time, the influence of each participant in the economic process on the overall situation is so small that it can be neglected.

Perfect competition has the following main features.

1. Numerous market entities. The market operates big number small sellers and buyers. Because of this, sales (or purchases) made by the seller are negligible compared to the total market volume (less than 1% sales or purchases for any period).
2. product homogeneity. This means that the products of competing firms are homogeneous and indistinguishable, i.e. these products of different enterprises are considered by the buyer as exact analogues. Since the goods are the same, the consumer does not care which seller to buy them from. Due to the homogeneity of products, there is no basis for non-price competition, i.e. competition based on differences in product quality, advertising or sales promotion.
3. Lack of price control. The large number of producers and consumers of homogeneous products actually predetermines that, under perfect competition, market entities are not able to influence prices. When a seller sets a higher price for a product, buyers freely move to its many competitors. If, on the other hand, an individual seller fixes a price below the usual level, then the goods sold at such a price will not be able to satisfy the demand of buyers in a significant way and disrupt free competition among them. In a perfectly competitive market, both buyers and sellers are price takers they "agree" with the price, take it for granted.
4. No barriers to entering and exiting the market. New firms are free to enter and existing firms to leave purely competitive markets (industries). There are no serious obstacles - legislative, financial or otherwise - that could prevent the emergence of new firms and the sale of their products in competitive markets. The absence of barriers means that resources are completely mobile and move seamlessly from one activity to another.
5. Full awareness of market participants about its current state. Comprehensive information about prices, technology, demand and supply of goods, the rate of return is available to everyone. There are no trade secrets, unpredictable developments, unexpected actions of competitors. Decisions are made by buyers and sellers in conditions of complete certainty regarding the market situation.

These conditions can hardly be met by at least one of the really functioning markets. Even the markets most similar to perfect competition (the grain market, valuable papers, foreign currencies) only partially satisfy them. In real life, there are always some bureaucratic or economic restrictions on entering the industry and starting a business. There are many trademarks, differentiating goods. Even when there are many sellers in an industry, there is often a dominant firm that has bargaining power and sets prices.

Thus, the listed conditions are largely assumptions that are never fully satisfied in real world.

Therefore, one can speak of a market of perfect competition only as a scientific abstraction that makes it possible to more clearly reveal the unrestricted operation of the laws of the market. Nevertheless, for all its abstractness, the concept of perfect competition plays an important role in economic science.

First, there are industries that operate under conditions close to perfect competition. For example, Agriculture more appropriate to this type of market than to any other market structure. Therefore, the model of a perfectly competitive market allows us to judge the principles of functioning of very many small firms selling homogeneous products.

Secondly, being the simplest market situation, perfect competition provides an initial sample, or standard, for comparison with other types of markets and for evaluating the effectiveness of real economic processes.

Let us find out how the firm operates in practice, provided that it is surrounded by a market of perfect competition, and the behavior of the firm will be different in the short and long run.

Introduction

Market pricing according to the laws of supply and demand, the formation of equilibrium market prices on this basis underlie the self-regulation of a market economy, its ability to solve economic problems more efficiently than other systems.

But there are no countries where the state would not interfere in the market in any way. The problem of studying state intervention will be relevant as long as the market itself exists.

The purpose of this term paper is to determine the role of the state in the market, the effectiveness of the state pricing policy.

To achieve the goal, the following tasks were set:

1. consider the market of perfect competition and the forms of price control of the state, their consequences;

2. consider the monopolistic market and determine the place of the state in this market;

3. compare the consequences state regulation both markets and determine if there are patterns public policy regarding the structure of the market.

Features of state regulation of prices in the market of perfect competition

Market structure

The market is an objective phenomenon of the economy, known to any person, and yet the market is still difficult to give an exhaustive definition. The market is one of the most common categories in economic theory and economic practice. The market as an economic category is a set of specific economic relations and relationships between buyers and sellers, and resellers about the movement of goods and money, reflecting the economic interests of the subjects of market relations and ensuring the exchange of products of labor. The market is the mechanism by which buyers and sellers interact to set the prices and quantities of goods and services. The market today is considered as a type of economic relations between the subjects of economic relations.

The structure of the market is the internal structure, location, order of individual elements of the market, their specific gravity in the total volume of the market; These are the conditions for market competition.

A necessary and most important element of the market is competition, which has different character and forms in different markets and in different market situations. Competition - economic rivalry for the right to obtain a larger share of a certain type of limited resources. The virtue of competition is that it makes the distribution of scarce resources dependent on the economic parameters of the competitors.

According to the conditions of the course of market competition, there are perfect And imperfect competition.

There are three main types of imperfect competition: monopolistic competition, oligopoly, monopoly.

Features of a perfectly competitive market

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 in fact a negation of the usual for business practices and everyday life understanding of competition as a sharp rivalry of economic agents. Perfect competition is perfect in the sense that with such an organization of the market, 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 can influence the level of the market price.

We say that perfect competition prevails if the following conditions are satisfied in the market:

1. The market is made up of many competing sellers, each selling a standardized product. many buyers.

2. Each firm has a very small share of total output sold on the market, less than 1% of total sales for any given time period.

3. Neither firm sees competitors as a threat to its market share of sales. Firms are thus not interested in the production decisions of their competitors. .

4. Price information , technology and probable profit is freely available, and there is an opportunity to quickly respond to changing market conditions through the movement of applied resources.

5. Market entry and exit from it for sellers of standardized goods is free . This means that there are no restrictions preventing the firm from selling the product on the market, and there are no difficulties with the termination of operations in the market.

A perfectly competitive market is a market where the conditions for perfect competition are satisfied. In a perfectly competitive market, buyers of standard products or services do not care which firm to choose. For example, the market for eggs is very likely to be competitive. Many vendors sell eggs every day. None of the farmers account for more than 1% of the daily market sales. The first two of the above conditions for a perfectly competitive market ensure that no seller can influence the price of a product. The individual seller has a very small share of the total output, he is not able to change the supply in the market so that the price changes. Accordingly, sellers in a perfectly competitive market accept prices as set from outside, that is, they are "price-takers".

This means that the price at which each firm sells its output is determined by forces beyond the control of the firm. It is about the conditions of supply and demand in the market as a whole. Demand conditions under perfect competition both for an individual firm and for the entire market are shown in Figure 1.

Let us assume that the equilibrium price P E equals $0.4 per pound of broiler, then the equilibrium quantity Q E is 2 billion pounds annually. Part (b) of the figure shows what the market looks like from the point of view of the individual producer. Range options From the point of view of the firm, output has a dimension expressed not in billions of pounds, but in thousands. This range is so small that whether a firm produces 10,000 pounds, 20,000 pounds, or 40,000 pounds of chicken per year has little to no effect on aggregate demand. The change per £10,000 is so small that it can't be seen on the much larger market demand and supply charts. With regard to a single firm, it is obvious that the demand curve for its products is perfectly elastic (horizontal) at the market price, although, from the point of view of the market as a whole, the demand curve has a quite usual negative slope.

7.1. Features of a perfectly competitive market.
7.2. Activity competitive firm, in the short term.
7.3. Perfect competition market in the long run.

Control questions.

In topic 7, note the connection with the theory of the following actual problems Russian economy:

Why is there no free pricing in crime-controlled markets?
Where can you find perfect competition in Russia?
Bankruptcy of enterprises in Russia.
What do they do Russian enterprises to reach the break-even zone?
Why temporarily stop production at Russian factories?
Does widespread small business lead to price changes?
Why even in highly competitive markets government intervention may be needed.

Features of a perfectly competitive market

Supply and demand - two factors that give life to the market as a place of their meeting, form the level of prices for goods and services in the economy. By defining cost and income curves, they create external environment the existence of the firm. The behavior of the firm itself, its choice of production volumes, and hence 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 the general conditions for the functioning of a particular market is the degree of development of competitive relations on it.

Etymologically word competition goes back to latin concurrentia, meaning clash, competition. Market competition is the struggle for the limited demand of the consumer, conducted between firms in the parts (segments) of the market accessible to them. As already noted (see 2.2.2), competition performs in a market economy essential function a counterbalance and at the same time an addition to the individualism of market entities. It forces them to take into account the interests of the consumer, and hence the interests of society as a whole.

Indeed, in the course of competition, the market selects from a variety of goods only those that consumers need. They are the ones that sell. Others remain unclaimed, and their production stops. In other words, outside a competitive environment, an individual satisfies his own interests, regardless of others. Under the conditions of competition the only way realization of one's own interest becomes taking into account the interests of others. Competition is a specific mechanism by which market economy solves fundamental questions What? How? for whom to produce 2

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

Competition and types of markets

According to the degree of development of competition, economic theory distinguishes the following main types of market:

1. Market of perfect competition,
2. Market of imperfect competition, in turn subdivided into:
- a) monopolistic competition
- b) oligopoly;
- c) a monopoly.

In a market of perfect competition, the splitting of economic power is maximal and the mechanisms of competition operate in full force. Many manufacturers operate here, deprived of any leverage to impose their will on consumers.

Under imperfect competition, the splitting of economic power is weaker or non-existent. 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 of 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. Under an oligopoly, market imperfection is significant and is dictated by the small number of firms operating on it. Finally, monopoly means that only one manufacturer dominates the market.

7.1.1. Conditions for perfect competition

The perfect competition 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 view 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 hypothetical firm more than he would pay its competitors. After all, the goods are the same, customers do not care which company they buy from, and they, of course, opt for the cheapest. That is, the condition of product homogeneity actually means that the difference in prices is the only reason why the buyer can prefer one seller to another.

Small size and large number of market participants

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

At the same time, 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 lower or increase their volumes creates neither surpluses nor deficits. The aggregate 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 drink beloved by the people if one more “point” appears in addition to the existing ones.

The inability to dictate the price to the market

These limitations (homogeneity of products, large number and small size of enterprises) actually predetermine that under perfect competition, market participants are not able 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 observed. Namely, if there are many sellers and their potatoes are exactly the same. Therefore, it is often said that under perfect competition, each individual firm-seller "takes the price", or is a price-taker.

Market entities under conditions of perfect competition can influence the general situation only when they act in agreement. That is, when some external conditions encourage all sellers (or all buyers) of 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 grocery stores, without agreeing, but equally understanding the situation, unanimously began to raise prices for goods of a “crisis” assortment - sugar, salt, flour, etc. Although the increase in prices was not economically justified (these goods rose in price much more than the ruble depreciated), the sellers managed to impose their will on the market precisely as a result of the unity of their position.

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

No Barriers

The next condition of the perfect militia conbotniks (the goal is to force the criminal "owners" of the market to show themselves, and then arrest them), then it fights precisely for the removal of barriers to entering 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 from one activity to another without problems. Buyers freely change their preferences when choosing goods, and sellers easily switch production to more profitable products.

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

Perfect

information

The last condition for the existence of a market of perfect competition is

giving a standardized homogeneous product, and, therefore, operating under conditions close to perfect competition.

2. It is of great methodological importance, 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. So, in physics, a number of concepts are used ( ideal gas, black body, ideal engine) built on the 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 expedient to dwell on the practical significance of the theory of perfect competition.

What conditions can be considered close to perfect 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 so) as if it were surrounded by a market of perfect competition.

Criterion

perfect

competition

First, let's figure out what the demand curve for the products of a firm operating in conditions of perfect competition should look like. Recall, first, that the firm accepts the market price, i.e., the latter is a given value for it. Secondly, the firm enters the market with a very small part of the total amount 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, under such conditions, the demand curve for the firm's products will look like a horizontal line (Fig. 7.2). Whether the firm produces 10 units, 20 or 1, the market will absorb them at the same price P.

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

The presence of perfectly elastic demand for the firm's product is called the criterion of perfect competition. As soon as such a situation develops in the market, the firm begins to

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

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

Average, marginal and total revenue of the firm

Income (revenue) of the firm is called payments received in its favor when selling products. Like many other indicators, economic science 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 of product sold, or (which is the same) total income divided by the number sold products. Finally, marginal revenue(MR) represents the additional income generated from the sale of the last unit sold.

A direct consequence of the fulfillment of 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 goods and that marginal income is always at the same level. So, if the price of a loaf of bread established in the market is 3 rubles, then the bread stall acting as a perfect competitor accepts it regardless of the volume of sales (the criterion of perfect competition is satisfied). 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 income). And the same amount of revenue will be on average for each loaf 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 in conditions of perfect competition is simultaneously the curve of its average and marginal revenue.

As for 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 3 rubles, then its revenue, of course, will be 300 rubles.

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

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

Small business in Russia and perfect competition

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

The fact is that most of the new businessmen started their business literally from scratch: no one had large capitals in the USSR. That's why small business embraced 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 operations. 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, “wild” brigades are actively engaged in construction for private individuals and renovation of apartments - the smallest firms, often operating without any registration. A specifically Russian phenomenon is also “small wholesale”- this term is even difficult to translate into many languages. In German, for example, wholesale is called "large trade" - Grosshandel, since it is usually carried out on a large scale. Therefore, the Russian phrase “small wholesale trade” is often conveyed by German newspapers with the absurd-sounding term “small-scale trade”.

Shuttle shops selling Chinese sneakers; and atelier, photography, hairdressing; vendors offering the same brands of cigarettes and vodka at metro stations and auto repair shops; typists and translators; apartment renovation specialists and peasants trading in collective farm markets - all of them are united by the approximate similarity of the product offered, the insignificant scale of the business compared to the size of the market, the large number of sellers, that is, many of the conditions for perfect competition. Mandatory for them and the need to accept the prevailing market price. The criterion of perfect competition in the sphere of small business in Russia is fulfilled 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(rather than privatized enterprises).

Perfect Competition

Model Plot

Perfect, free or pure competition - economic model, an idealized state of the market, when individual buyers and sellers cannot influence the price, but form it with their contribution of supply and demand. In other words, this is a type of market structure where the market behavior of sellers and buyers is to adapt to the equilibrium state of market conditions.

Features of perfect competition:

an infinite number of equal sellers and buyers
homogeneity and divisibility of products sold
no barriers to entry or exit from the market
high mobility of factors of production
equal and full access of all participants to information (prices of goods)

In the case when at least one feature is absent, competition is called imperfect. In the case when these signs are artificially removed in order to occupy a monopoly position in the market, the situation is called unfair competition.

In some countries, one of the widely used types of unfair competition is the giving of bribes, explicitly and implicitly, to various representatives of the state in exchange for various kinds of preferences.

David Ricardo revealed a natural tendency in conditions of perfect competition to reduce the economic profit of each of the sellers.

In a real economy, the exchange market most resembles a perfectly competitive market. In the course of observing the phenomena of economic crises, it was concluded that this form of competition usually fails, from which it is possible to get out only thanks to external intervention.

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See what "Perfect Competition" is in other dictionaries:

Idealized state commodity market characterized by: the presence on the market of a large number of independent entrepreneurs (sellers and buyers); the opportunity for them to freely enter and leave the market; equal access to ... ... Financial vocabulary

- (perfect competition) The ideal state of the market, in which there are many sellers and buyers with equal access to information, so that each of them can act as a person who agrees with a given price, and is ready to sell and receive any ... ... Economic dictionary

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PERFECT COMPETITION- (perfect competition) (Political economy) concept free market an ideal type in which (a) there are many buyers and many sellers, (b) the commodity units are homogeneous, (c) the purchases of any buyer do not noticeably affect the market ... ... Big explanatory sociological dictionary

Perfect Competition- 1) the functioning of the market mechanism in the presence of a large number sellers, high quality of goods, no restrictions for new production in conditions of full awareness of consumers and producers about market conditions. ... ... Dictionary of Economic Theory

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The perfect competition market model is based on four basic conditions (Fig. 1.1). Let's consider them sequentially.

Rice. 1.1. Conditions for perfect competition

1.product homogeneity. This means that the products of firms in the view of buyers are homogeneous and indistinguishable, i.e. these products of different enterprises are completely interchangeable (they are complete substitute goods). More strictly, the concept of product homogeneity can be expressed in terms of the cross-price elasticity of demand for these goods. For any pair of manufacturing enterprises, it should be close to infinity. economic sense This provision is as follows: goods are so similar to each other that even a small price increase 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 any particular firm more than he would pay its competitive firms. After all, the goods are the same, customers do not care which company they buy from, and they, of course, opt for cheaper ones. The condition of product homogeneity means, in fact, that the difference in prices is the only reason why a buyer can choose one seller over another.

2. Under perfect competition, neither sellers nor buyers affect the market situation due to the small size of the firm, the multiplicity of market participants. Sometimes both of these features of perfect competition are combined, speaking of the atomistic structure of the market. This means that there are a large number of small sellers and buyers operating in the market, just as any drop of water is made up of a gigantic number of tiny atoms.

At the same time, 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 lower or increase their volumes does not create either surpluses or shortages of goods. The aggregate size of supply and demand simply "does not notice" such small changes.

All these limitations (homogeneity of products, large number and small size of enterprises) actually predetermine that, under perfect competition, market entities are not able to influence prices. Therefore, it is often said that under perfect competition, each individual firm-seller "takes the price", or is a price-taker.

3. An important condition for perfect competition is no barriers to entering and exiting the market. When there are such barriers, 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 lack of barriers typical of perfect competition or the freedom to enter and leave the market (industry) means that resources are completely mobile and move from one activity to another without problems. There are no difficulties with the termination of operations in the market. Conditions do not force anyone to stay in the industry if it does not suit their interests. In other words, the absence of barriers means the 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 rationally respond to changing market conditions by moving the resources used. There are no trade secrets, unpredictable developments, unexpected actions of competitors. Decisions are made by the firm in conditions of complete certainty in relation to the market situation or, what is the same, in the presence of perfect information about the market.

In reality, perfect competition is quite rare and only some of the markets come close to it (for example, the market for grain, 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 model for comparing and evaluating 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 firm takes the market price, which serves as a given value for the corresponding calculations. Secondly, the firm enters the market with a very small part of the total amount 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, under 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 of output, 20 or 1, the market will absorb them at the same price R.

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

perfect competition

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

In an industry, a competitive firm can occupy different position. It depends on what its costs are in relation to the market price of the good that the firm produces. In economic theory, three most common cases of the ratio of the average costs of a firm are considered AC and market price R, determining the state of the firm (obtaining excess profits, normal profits or the presence of losses), which is shown in Fig. 1.3.

In the first case (Fig. 1.3, a) we observe an unsuccessful, inefficient firm: its costs are too high compared to the price of the goods 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 firm with the volume of production Q E reaches equality between average cost and price (AC = P), which characterizes the equilibrium of the firm in the industry. After all, the average cost function of the firm can be considered as a function of supply, and demand is a function of price. R. This is how equality between supply and demand is achieved, i.e. equilibrium. Volume of production Q E in this case is balanced. While in equilibrium, the firm earns only accounting profit, and economic profit (i.e. excess profit) is equal to zero. The presence of accounting profit provides the firm with a favorable position in the industry.

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

The position of the firm receiving excess profits in the industry is shown in fig. 1.3, c. With a production volume between Q1 before Q2 the firm has an excess profit: income received from the sale of products at a price R, exceeds the firm's costs (AC< Р). It should be noted that the maximum amount of profit is achieved in the production of products in the volume Q2 The size of profit is shown on fig. 1.3, in the shaded area.

However, it is possible to determine more precisely the moment when the increase in production should be stopped so that profits do not turn into losses, as, for example, with output at the level Q3. To do this, it is necessary to compare the marginal costs of the firm MS with the market price, which for a competitive firm is also the marginal revenue MR. Recall that the income (revenue) of the firm is called payments received in its favor when selling products. Like many other indicators, economics 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 product sold, or, equivalently, total revenue divided by the number of products sold. Finally, marginal revenue (MR) represents the additional income generated from the sale of the last unit sold.

A direct consequence of the fulfillment of 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 goods. The marginal revenue is always at the same level. So, if the price of a loaf of bread established in the market is 23 rubles, then the bread stall acting as a perfect competitor accepts it regardless of the volume of sales (the criterion of perfect competition is fulfilled). 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 income). And the same amount of revenue will be on average for each loaf 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 in conditions of perfect competition is simultaneously the curve of its average and marginal prices.

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 23 rubles, then its revenue, of course, will be 2300 rubles.

Rice. 1.3. The position of a competitive firm in the industry:

a - the company suffers losses;

b - obtaining a normal profit;

c - making super profits

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

tg=∆TR/∆Q=MR=P

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

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

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

a - finding the optimal volume of output;

b - determining the profit (or loss) of a firm - a perfect competitor

In figure 1.4, but we see that for a given firm, the equality MS=MR achieved by the production and sale of the 10th unit of output. Therefore, 10 units of goods is the optimal volume of production, since this volume of output allows you to maximize profits, i.e. get all the profits in full. By producing fewer products, say five units, the firm's profit would be incomplete and we would only get a portion of the shaded figure representing profit.

It is necessary to distinguish between the profit received from the production and sale of one unit of output (for example, the fourth or fifth), and the total, total profit. When we talk about profit maximization, we are talking 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 output (see Fig. 1.4, a), we will not stop at this quantity and will continue to release. We are fully interested in all products, in the production of which MS< МR, which brings profit before MS alignment And MR. After all market price pays for the production costs of the seventh, and even the ninth unit of output, additionally bringing, albeit small, but still profit. So why give it up? It is necessary to refuse from losses, which in our example arise during the production of the 11th unit of output. Now the balance between marginal revenue and marginal cost is reversed: MS > MR. That is why, in order to get all the profit in full (to maximize profit), it is necessary to stop at the 10th unit of production, at which MS=MR. In this case, the possibilities for further increase in profits have been exhausted, as evidenced by this equality.

The rule of equality of marginal costs to marginal revenue considered by us underlies the principle of production optimization, which is used to determine optimal, the most profitable volume of production at any price emerging on the market.

Now we have to find out what the firm's position in the industry at optimal output: whether the firm will incur losses or make a profit. For this, let us turn to Fig. 1.4, b, where the company is shown in full: to the function MS added a graph of the average cost function AS.

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

Step one: using the optimization rule, we determine the optimal output volume Qopt, 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 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 firm in Figure 1.4, b, the equality between MS And MR achieved by the production of the 10th unit of output. Therefore, the optimal output is 10 units.

Recall that under perfect competition, a firm's marginal revenue is the same as its 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 incomeMR match (MR = P), which saves us from looking for the optimal output price: it will always be equal to the marginal revenue from the last unit of goods.

Step two: determine the average cost AC in the production of goods in the volume Q opt . To do this, from the point Q opt , equal to 10 units, we draw a perpendicular up to the intersection with the function AU, putting a point on this curve. From the obtained point, we draw a perpendicular to the left to the y-axis, on which the amount of costs in monetary terms is plotted. Now we know what the average cost is AC optimum production volume.

Step three: determine the profit (or loss) of the firm. We have already found out what the average costs are AC for Q opt . Now it remains to compare them with the market price R, prevailing in the industry.

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

Firm profit = (R - AC)*Qopt

Of course, we are talking about profit, provided that P > AC. If it turned out that R< АС, then we would talk about the losses of the company, the size of which is calculated according to the same formula.

In figure 1.4, b, the profit is shown as a shaded rectangle. Note that in this case, the company received not accounting, but economic or excess profits that exceed the costs of lost opportunities.

There is also another way to determine profit(or loss) of the firm. Recall what can be calculated if we know the sales volume of Qopt and the market price R? Of course, the magnitude total income:

TR = P* Qopt

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

TS = AC*Qopt

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

Profit (or loss) of the firm = TR - TC.

When (TR - TS) > 0 the firm is making a profit, but if (TR - TS)< 0 the firm incurs losses.

So, at the optimal output, when MS = MR, A competitive firm can make economic profits (surplus profits) or suffer losses. Why is it necessary to determine the optimal volume of output in case of losses? The fact is that if the firm produces according to the rule MS = MR, then at any (favorable or unfavorable) price that develops in the industry, it still wins.

Benefit from optimization is that if the equilibrium price in an industry is above the average cost of a perfect competitor, then the firm maximizes profit. If the equilibrium price in the market falls below average cost, then MS = MR firm minimizes losses otherwise they could be much larger.

What happens in the industry with the company in the long term? If the equilibrium price at industry market, above average costs, then firms earn excess profits, which stimulates the emergence of new firms in a profitable industry. The influx of new firms expands the industry 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: the industry leaves those firms that are not able to carry out measures to cost reduction, those. inefficient companies. Thus, the excess supply in the industry is reduced, while the price in the market begins to rise again, and the profits of companies that are able to restructure production grow.

So in the long run industry supply is changing. This happens 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 the average cost: R = AC. In this situation, firms do not incur losses, but do not receive excess profits. Such long term situation called equilibrium.

Under conditions of equilibrium, when the demand price coincides with the average cost, the firm produces products according to the optimization rule at the level MR = MS, those. produces the optimal amount 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 in the industry is equality AC = P = MS.

The position of a perfect competitor upon reaching equilibrium in the industry is shown in Fig. 1.5.

Rice. 1.5. The equilibrium of a firm that is a perfect competitor

In Figure 1.5, the price function (market demand) for the firm's products passes through the intersection point of the functions AC And MS. Since, under perfect competition, the firm's marginal revenue function MR coincides with the demand (or price) function, then the optimal production volume Q opt corresponds to the equality AC \u003d P \u003d MR \u003d MS, which characterizes the position of the firm in the conditions equilibrium(at point E). We see that under the conditions long run equilibrium The firm earns neither economic profit nor loss.

However, what happens to the firm itself in the long term? Long term LR(from English Long-run period) fixed costs firms FС increase with the expansion of its production potential. In this case, changing the scale of the firm using appropriate technologies produces economies of scale. The essence of this scale effect 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 grows, remain at a minimum level. Once economies of scale have been exhausted, average costs begin to rise again.

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

Rice. 1.6. Average cost of the firm in the long run - LRAC

What is the best size for a firm? Obviously, one at which the short-run average cost reaches the minimum level of the long-run average cost LRAC. After all, as a result of long-term changes in the industry, the market price is set at the level of the LRAC minimum. This is how the firm achieves long-run equilibrium. In conditions balance in the long run the minimum levels of short-term and long-term average costs of the firm 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.