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

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

Imperfect competition as an economic phenomenon

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

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

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

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

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

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

• price- lowering prices for products, reducing costs in the production and marketing process, manipulating pricing, price maneuvers designed to attract a buyer;
• non-price- emphasis on the quality of the product, attracting customers with the help of various promotions, offering a larger volume of goods or services for an equal price, non-standard advertising campaigns;
• non-economic- industrial, economic espionage, bribery of responsible persons, etc.

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

Forms of imperfect competition

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

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

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

• the number of sellers (manufacturers);
• market product differentiation;
• the ability to influence prices;
• entry and exit barriers.

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

Labor market

Imperfect competition in the labor market is a complex phenomenon involving several important factors. It should be noted that this market sector is the most subject to regulation in order to minimize the negative consequences of the “imperfect market”.

Regulatory factors of the labor market:

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

Market laws in relation to the labor market work in a special way. The sale of labor force, skills and abilities is fixed, as a rule, by a long-term employment contract, which gives guarantees of employment to the employee, despite fluctuations in supply and demand. In addition, an individual labor contract or agreement cannot contain conditions worse than those fixed in the collective agreement or in labor legislation.

The seller in this case receives guarantees of employment, is withdrawn from market relations for the duration of the contract with the buyer.

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

Imperfect competition and government regulation

Imperfect competition, being far from ideal models of building an economy, has its own negative aspects and consequences: an increase in product prices that is not justified by an increase in costs, an increase in production costs themselves, a slowdown in progressive trends, a negative impact on competitiveness on a scale of world markets, and finally, a slowdown in development economy.

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

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

At the same time, the state, realizing the global danger of market monopolization, is fighting it. Antitrust regulation – a package of antitrust laws that is constantly evolving to reflect market trends. Based on it, administrative antimonopoly control of markets is carried out by authorized state antimonopoly structures. An effective mechanism for influencing monopolists is being developed.

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

Results

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

A perfectly competitive market is characterized by the following features:

Firms produce the same, so that consumers do not care which manufacturer to buy it from. All products in the industry are perfect substitutes, and the cross-price elasticity of demand for any pair of firms tends to infinity:

This means that any arbitrarily small increase in the price of one producer above the market level leads to a reduction in demand for his products to zero. Thus, the difference in prices may be the only reason for preferring one or another firm. No non-price competition.

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

Freedom to enter and exit the market. There are no restrictions and barriers - there are no patents or licenses restricting activity in this industry, significant initial investments are not required, the positive effect of scale of production is extremely small and does not prevent new firms from entering the industry, there is no government intervention in the supply and demand mechanism (subsidies , tax incentives, quotas, social programs, etc.). Freedom of entry and exit absolute mobility of all resources, freedom of their movement territorially and from one type of activity to another.

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

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

However, the perfect competition model:

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

• clarifies the conditions for profit maximization;
• is the standard for evaluating the performance of the real economy.

Short-run equilibrium of a firm under perfect competition

Demand for a perfect competitor's product

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

Rice. 1. The demand curve for the products of a competitor

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

Income of a firm that is a perfect competitor

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

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

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

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

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

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

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

By definition

All income functions are shown in Fig. 2.

Rice. 2. Competitor's income

Determination of the optimal output volume

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

Based on the current market and technological conditions, the firm determines optimal output volume, i.e. the volume of output that provides the firm profit maximization(or minimization if profit is not possible).

There are two interrelated methods for determining the optimum point:

1. The method of total costs - total income.

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

n=TR-TC=max

Rice. 3. Determination of the point of optimal production

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

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

dp/dQ=(p)`= 0.

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

marginal profit ( MP) shows the increase in total profit with a change in output per unit.

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

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

2. The method of marginal cost - marginal income.

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

And since dTR/dQ=MR, but dTC/dQ=MC, then total profit reaches its maximum value at such a volume of output at which marginal cost equals marginal revenue:

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

This equality valid for any market structures, however, in conditions of perfect competition, it is somewhat modified.

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

The firm operates under perfect competition. Current market price Р=20 c.u. The total cost function has the form TC=75+17Q+4Q2.

It is required to determine the optimal output volume.

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

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

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

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

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

Solving this equation, we got the same result.

Short-term benefit condition

The total profit of the enterprise can be estimated in two ways:

• P=TR-TC;
• P=(P-ATS)Q.

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

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

It follows that a firm's profit (or loss) in the short run depends on the ratio of its average total cost (ATC) at the point of optimal production Q* and the current market price (at which the firm, a perfect competitor, is forced to trade).

The following options are possible:

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

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

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

if P*=ATC, then economic profit is zero, production is breakeven, and the firm earns only normal profit.

Termination Condition

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

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

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

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

P>AVC,

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

If price equals average variable cost

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

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

Let us prove the validity of these arguments.

By definition, n=TR-TS. If a firm maximizes its profit by producing the nth number of products, then this profit ( n) must be greater than or equal to the profit of the firm under the conditions of closing the enterprise ( on), because otherwise the entrepreneur will immediately close his enterprise.

In other words,

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

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

The ratio between the price ( R) and average total cost ( ATS) shows the amount of profit or loss per unit of output while continuing production.

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

Competitor's short run supply curve

By definition, supply curve reflects the supply function and shows the amount of goods and services that producers are willing to supply to the market at given prices, at a given time and place.

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

Let's assume that the market price is Ro, and the average and marginal cost curves look like those in Fig. 4.8.

Insofar as Ro(closing points), then the firm's supply is zero. If the market price rises to a higher level, then the equilibrium output will be determined by the relation MC And MR. The very point of the supply curve ( Q;P) will lie on the marginal cost curve.

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

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

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

Determine the firm's supply function under perfect competition.

1. Find MS:

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

2. Equate MC to the market price (condition of market equilibrium under perfect competition MC=MR=P*) and get:

2+(Q-2) 2 = P or

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

However, we know from the preceding material that the supply quantity Q=0 for P

Q=S(P) at Pmin AVC.

3. Determine the volume at which the average variable costs are minimal:

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

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

4. Determine what min AVC equals by substituting Q=3 into the min AVC equation.

• min AVC=6-2(3)+(1/3)(3) 2 =3.

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

• Q=2+(P-2) 1/2 ,if P3;
• Q=0 if R<3.

Long-run market equilibrium under perfect competition

Long term

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

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

In the long term:

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

Main assumptions of the analysis

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

Let the market price P1 determined by the interaction of market demand ( D1) and market supply ( S1). The cost structure of a typical firm in the short run has the form of curves SATC1 And SMC1(Fig. 4.9).

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

The mechanism of formation of long-term equilibrium

Under these conditions, the firm's optimal output in the short run is q1 units. The production of this volume provides the company positive economic profit, since the market price (P1) exceeds the firm's average short-term cost (SATC1).

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

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

The emergence of new firms in the industry and the expansion of old firms shifts the market supply curve to the right to the position S2(as shown in Fig. 9). The market price falls from P1 before R2, and the equilibrium volume of industry output will increase from Q1 before Q2. Under these conditions, the economic profit of a typical firm falls to zero ( P=SATC) and the process of attracting new companies to the industry is slowing down.

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

The rest of the enterprises will try to reduce their costs by optimizing the size (i.e., by some reduction in the scale of production to q2) to a level at which SATC=LATC, and it is possible to obtain a normal profit.

Shifting the industry supply curve to the level Q2 cause the market price to rise to R2(equal to the minimum long-run average cost, P=min LAC). At a given price level, the typical firm earns no economic profit ( economic profit is zero, n=0), and is only able to extract normal profit. Consequently, the motivation for new firms to enter the industry disappears and a long-run equilibrium is established in the industry.

Consider what happens if the equilibrium in the industry is disturbed.

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

If the market price ( R) is set above the average long run costs of a typical firm, i.e. P>LATC, then the firm begins to earn a positive economic profit. New firms enter the industry, market supply shifts to the right, and with market demand unchanged, price falls to the equilibrium level.

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

Basic conditions for long-run equilibrium

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

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

Market supply in the long run

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

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

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

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

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

This means that a fixed cost industry is a horizontal line.

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

A higher price allows firms to earn economic profits, which attracts new firms to the industry. The expansion of aggregate production necessitates an ever wider use of resources. As a result of competition between firms, resource prices increase, and as a result, the costs of all firms (both existing and new ones) in the industry increase. Graphically, this means an upward shift in the marginal and average cost curves of the typical firm from SMC1 to SMC2, from SATC1 to SATC2. The short run firm's supply curve also shifts to the right. The adjustment process will continue until economic profits dry up. On fig. 4.9 the new equilibrium point will be the price P2 at the intersection of the demand curves D2 and supply S2. At this price, the typical firm chooses the output at which

P2=MR2=SATC2=SMC2=LATC2.

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

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

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

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

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

TCi=f(qi,Q),

where qi- the volume of output of an individual firm;

Q is the output of the entire industry.

In industries with fixed costs, there are no external economies; the cost curves of individual firms do not depend on the output of the industry. In industries with increasing costs, there is negative external diseconomies, the cost curves of individual firms shift upwards with an increase in output. Finally, in industries with decreasing costs, there is a positive external economy that offsets internal uneconomics due to diminishing returns to scale, so that the cost curves of individual firms shift downward as output increases.

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

2. State regulation .................................................................. .... 3

a.Reasons for government regulation...................... 3

b.Tasks of state regulation.............................. 4

c.Types of state regulation of markets ....... 4

d.State regulation in Russia.............................. 5

3. A little bit.............................................. ............................... 6

4. Bibliography................................................. ................................. 7

Let's start from the beginning

Studying various types of markets, we divide them all, first, into two types: markets of perfect and imperfect competition, depending on the number of economic agents in the market, product differentiation, the share of an individual seller in the market, the presence or absence of entry and exit barriers in the market, accessibility information, the degree of bargaining power of sellers. But markets of perfect competition in life are quite rare (for example, the market for agricultural products or the securities market), but with imperfect competition (by which we mean monopolistic competition, oligopoly and monopoly) we meet much more often. And since sellers in such markets have market power, the prices of their goods are higher than in a perfectly competitive market. This means that state intervention and price regulation often serves the interests of buyers, except in cases where the state, for example, by supporting temporarily idle giant factories, artificially inflates prices for their products.

Since monopolistic competition is pretty close to perfect, we will turn our attention to the state regulation of oligopolies and monopolies. We will try to understand the causes and objectives of regulating their activities, consider the situation that has developed in Russia in the last decade.

Reasons for government regulation

Despite the technical efficiency of the concentration of production in the hands of one enterprise, a monopolist or oligopolist often abuses his position. This manifests itself in overstating costs or inflating profits. And unreasonably high prices negate the social effect of economies of scale.

There are two main options for the economic behavior of the seller of goods in a non-competitive market, allowing you to make a profit that is significantly greater than in the case of his actions in a competitive market.