Cinta yang kau agungkan itu
tak kan menolong mu
kau hanya membanggakan kepalsuan
Tak bisakah kau berfikir logika
tak bisakah kau menggunakan perasaan mu
kau bilang kau bahagia
bahagia seperti apa?
jika bahagia
bisa kah kau memberi sedikit untukku
agar aku tahu bahagiamu
lebih baik tidak!
aku sudah tahu
kau hanya seperti anak kecil
pikiranmu hanya sebatas
kau ingin tahu yang sesungguhnya?
satu kebahagiaan
yang sampai sekarang
aku tidak bisa meraihnya
kau boleh tertawa
tapi aku yakin hanya ini yang paling berharga bagi diriku
Saturday, January 8, 2011
LelahKu
Aku bosan dengan semua ini.
Bosan dengan lelah
Bosan dengan penat
Aku ingin pergi
pergi meninggalkan gelap
meninggalkan sepi
Beri aku tuntunan
jangan beri aku harapan
jika semuanya tak bisa kau lakukan
Bosan dengan lelah
Bosan dengan penat
Aku ingin pergi
pergi meninggalkan gelap
meninggalkan sepi
Beri aku tuntunan
jangan beri aku harapan
jika semuanya tak bisa kau lakukan
Kebiasaan makan beras
Mungkin jarang sekali orang memiliki kebiasaan makan beras. Tidak bagi saya. dulunya saya tidak pernah makan beras. Namun yang awalnya hanya ikut-ikutan melihat teman kos saya yang hobi sekali makan beras, akhirnya jadi kebiasaan.
saya tidak tahu, apa akibat sering makna beras. Menurut saya makan beras itu adalah kebiasaan yang sah saja. Bahkan berpengaruh positif bagi yang sakit maag. Kenapa demikian? Dulu saya sering sakit maag, tapi sekarang jarang sekali saya merasakan sakit maag. Mungkinkah karena kebiasaan saya ini?
Walaupun beras sudah dimasak menjadi nasi, tapi kandungannya tetap sama, karbohidrat. jadi sama saja, makan beras dengan makan nasi.
saya tidak tahu, apa akibat sering makna beras. Menurut saya makan beras itu adalah kebiasaan yang sah saja. Bahkan berpengaruh positif bagi yang sakit maag. Kenapa demikian? Dulu saya sering sakit maag, tapi sekarang jarang sekali saya merasakan sakit maag. Mungkinkah karena kebiasaan saya ini?
Walaupun beras sudah dimasak menjadi nasi, tapi kandungannya tetap sama, karbohidrat. jadi sama saja, makan beras dengan makan nasi.
Creed - With Arms Wide Open lyrics
Well I just heard the news today
It seems my life is gonna to change
I close my eyes, begin to pray
Then tears of joy stream down my face
With arms wide open
under the sunlight
welcome to this place
i'll show you everything
With arms wide open
With arms wide open
Well I don't know if I'm ready
To be the man I have to be
I'll take a breath, I'll take her by my side
We stand in awe, we've created life
With arms wide open
Under the sunlight
Welcome to this place
I'll show you everything
With arms wide open
Now everything has changed
I'll show you love
I'll show you everything
With arms wide open
With arms wide open
I'll show you everything
Oh yeah
With arms wide open
Wide open
If I had just one wish
Only one demand
I hope he's not like me
I hope he understands
That he can take this life
And hold it by the hand
And he can greet the world
With arms wide open
With Arms wide open
Under the sunlight
Welcome to this place
I'll show you everything
With arms wide open
Now everything has changed
I'll show you love
I'll show you everything
With arms wide open
With arms wide open
I'll show you everything oh yeah
With arms wide open
wide open
powered by lirik lagu indonesia
Economies of Scale and Market Structure
Summary of Krugman_Obstfeld_-_International_Economics
Economies of Scale and Market Structure
External and internal economies of scale have different implications for industry structure. An industry where economies of scale are purely external will usually consist of many small firms and perfect competition. Internal scale economies, by contrast, gives large companies the cost advantages of smaller and leads to imperfectly competitive market structure.
The theory of imperfect competition. In a perfectly competitive market where there are many buyers and sellers, none of which is most of market firms is a price taker. In imperfect competition, then, the company realized that they could affect the price of their products and that they can sell more only by reducing their prices. Imperfect competition are the characteristics of the two industries where there are only a few large producers and industry. In this situation every company sees itself as a price maker.
where Q is the number of units the firm sells, P the price it charges per unit, and A and B are constants. We show in the appendix to this chapter that in this case marginal revenue is
implying
Marginal revenue = MR = P - Q/B, (6-2)
P - MR = Q/B.
Equation (6-2) reveals that the gap between price and marginal revenue depends on the initial sales Q of the firm and the slope parameter B of its demand curve. If sales quantity, Q, is higher, marginal revenue is lower, because the decrease in price required to sell a greater quantity costs the firm more. The greater is B, that is. the more sales fall for any given increase in price and the closer marginal revenue is to the price of the good. Equation (6-2) is crucial for our analysis of the monopolistic competition model of trade (pp. 132-150).
Average and Marginal Costs.
AC is total cost divided by its output. The downward slope reflects our assumption that there are economies of scale, so that the larger the firm’s output is the lower are its costs per unit. MC represents the firm’s marginal cost (the amount it costs the firm to produce one extra unit). We know from basic economics that when average costs are a decreasing function of output, marginal cost is always less than average cost. Thus MC lies below AC.
Equation (6-2) related price and marginal revenue. There is a corresponding formula relating average and marginal cost. Suppose the costs of a firm, C, take the form
C = F + c X Q, (6-3)
where F is a fixed cost that is independent of the firm’s output, c is the firm’s marginal cost, and Q is once again the firm’s output. (This is called a linear cost function.) The fixed cost in a linear cost function gives rise to economies of scale, because the larger the firm’s output, the less is the fixed cost per unit. Specifically, the firm’s average cost (total cost divided by output) is
Average cost = AC = C/Q = F/Q + c (6-4)
Monopolistic Competition
A firm making high profits normally attracts competitors. Thus situations of pure monopoly are rare in practice. Instead, the usual market structure in industries characterized by internal economies of scale is one of oligopoly.
in oligopolies the pricing policies of firms are interdependent. Each firm in an oligopoly will, in setting its price, consider not only the responses of consumers but also the expected responses of competitors. These responses, however, depend in turn on the competitors’ expectations about the firm’s behavior and we are therefore in a complex game in which firms are trying to second-guess each others’ strategies.
In monopolistic competition models two key assumptions are made to get around the problem of interdependence. First, each firm is assumed to be able to differentiate its
product from that of its rivals. That is, because they want to buy this firm’s particular product, the firm’s customers will not difficult to buy other firms’ products because of difference prices. Second, each firm is assumed to take the prices charged by its rivals as given that is, it ignores the impact of its own price on the prices of other firms. As a result, the monopolistic competition model assumes that even though each firm is in reality facing competition from other firms, it behaves as if it were a monopolist hence the model’s name.
Before we can examine trade, however, we need to develop a basic model of monopolistic competition. Let us therefore imagine an industry consisting of a number of firms. These firms produce differentiated products, that is, goods that are not exactly the same but that are substitutes for one another. Each firm is therefore a monopolist in the sense that it is the only firm producing its particular good, but the demand for its good depends on the number of other similar products available and on the prices of other firms in the industry.
Assumptions of the Model.
We would expect a firm to sell more the larger the total demand for its industry’s product and the higher the prices charged by its rivals. On the other hand, we expect the firm to sell less the greater the number of firms in the industry and the higher its own price. A particular equation for the demand facing a firm that has these properties is2
Q = S (1/n -b(P- ˉP)) (6-5)
where Q is the firm’s sales, S is the total sales of the industry, n the number of firms in the industry, b a constant term representing the responsiveness of a firm’s sales to its price, P the price charged by the firm itself , and ˉP the average price charged by its competitors. If all firms charge the same price, each will have a market share 1/n. A firm charging more than the average of other firms will have a smaller market share, a firm charging less a larger share.
It is helpful to assume that total industry sales S are unaffected by the average price P charged by firms in the industry. That is, we assume that firms can gain customers only at each others’ expense. This is an unrealistic assumption, but it simplifies the analysis and helps focus on the competition among firms. In particular, it means that S is a measure of the size of the market and that if all firms charge the same price, each sells S in units.
Market Equilibrium.
When the individual firms are symmetric, the state of the industry can be described without enumerating the features of all firms in detail. To analyze the industry, for example to assess the effects of international trade, need to determine the number of firms n and the average price they charge P.
method for determining n and P involves three steps.
(1) First, derive a relationship between the number of firms and the average cost of a typical firm. this relationship is upward sloping; that is, the more firms there are, the lower the output of each firm, and thus the higher its cost per unit of output.
(2) next show the relationship between the number of firms and the price each firm charges, which must equal P in equilibrium. this relationship is downward sloping
(3) Finally,when the price exceeds average cost additional firms will enter the industry, while when the price is less than average cost firms will exit. So in the long run the number of firms is determined by the intersection of the curve that relates average cost to n and the curve that relates price to n.
1. The number of firms and average cost.
average cost depends on the size of the market and the number of firms in the industry:
AC = F/Q + c = n X F/S + c. (6-6)
Equation (6-6) tells us that other things equal, the more firms there are in the industry the higher is average cost. The reason is that the more firms there are, the less each firm produces. The upward-sloping relationship between n and average cost is shown as CC in Figure 6-3.
The equilibrium price and number of firms occurs when price equals average cost, at the intersection of PP and CC.
2. The number affirms and the price. The price the typical firm charges also depends on the number of firms in the industry. In general, we would expect that the more firms there are, the more intense will be the competition among them, and hence the lower the price. This turns out to be true in this model, but proving it takes a moment.
First recall that in the monopolistic competition model firms are assumed to take each others’ prices as given; that is, each firm ignores the possibility that if it changes its price other firms will also change theirs. If each firm treats P as given, we can rewrite the demand curve (6-5) in the form
Q = {S/n + S x b x ‘P) - S X b X P, (6-7)
where b is the parameter in equation (6-5) that measured the sensitivity of each firm’s market share to the price it charges. Now this is in the same form as (6-1), with S/n + S X b X P in place of the constant term A and 5 X b in place of the slope coefficient B. If we plug these values back into the formula for marginal revenue (6-2), we have a marginal revenue for a typical firm of
MR = P - Q/(S X b). (6-8)
Profit-maximizing firms will set marginal revenue equal to their marginal cost c, so that
MR = P – Q/(S Xb) = c,
which can be rearranged to give the following equation for the price charged by a typical firm:
P = c + Q/(S X b). (6-9)
We have already noted, however, that if all firms charge the same price, each will sell an amount Q = S/n. Plugging this back into (6-9) gives us a relationship between the number of firms and the price each firm charges:
P = c + 1/(bxn). (6-10)
3. The equilibrium number of firms.
The downward-sloping curve PP shows that the more firms there are in the industry, the lower the price each firm will charge. This makes sense: The more firms there are, the more competition each firm faces. The upward-sloping curve CC tells us that the more firms there are in the industry, the higher the average cost of each firm. This also makes sense: If the number of firms increases, each firm will sell less, so firms will not be able to move as far down their average cost curve.
The two schedules intersect at point E, corresponding to the number of firms n2 The significance of n2 is that it is the zero-profit number of firms in the industry. When there are n2 firms in the industry, their profit-maximizing price is P2, which is exactly equal to their average cost AC2. point E describes the industry’s long-run equilibrium.
To see why, suppose that n were less than n2, say n1 Then the price charged by firms would be P1 while their average cost would be only AC1 Thus firms would be making monopoly profits. Conversely, suppose that n were greater than n2, say n1 Then firms would charge only the price P1 while their average cost would be AC1 Firms would be suffering losses. Over time, firms will enter an industry that is profitable, exit one in which they lose money. The number of firms will rise over time if it is less than n2, fall if it is greater. This means that n2 is the equilibrium number of firms in the industry and P2 the equilibrium price.4
Limitations of the Monopolistic Competition Model
Key elements of markets in monopolistic competition where there are economies of scale and thus imperfect competition. However, few industries are well described by monopolistic competition. Instead, the most common market structure is one of small-group oligopoly, where only a few firms are actively engaged in competition.
Two kinds of behavior arise in the general oligopoly setting that are excluded by assumption from the monopolistic competition model. The first is collusive behavior. Each firm may keep its price higher than the apparent profit-maximizing level as part of an understanding that other firms will do the same; since each firm’s profits are higher if its competitors charge high prices, such an understanding can raise the profits of all the firms (at the expense of consumers). Collusive price-setting behavior may be managed through explicit agreements (illegal in the United States) or through tacit coordination strategies, such as allowing one firm to act as a price leader for the industry.
The monopolistic competition approach to trade is attractive because it avoids these complexities. Even though it may leave out some features of the real world, the monopolistic competition model is widely accepted as a way to provide at least a first cut at the role of economies of scale in international trade.
Monopolistic Competition and Trade
In industries where there are economies of scale, both the variety of goods that a country can produce and the scale of its production are constrained by the size of the market. Each country can specialize in producing a narrower range of products than it would in the absence of trade; yet by buying goods that it does not make from other countries, each nation can simultaneously increase the variety of goods available to its consumers. As a result, trade offers an opportunity for mutual gain even when countries do not differ in their resources or technology.
The Effects of Increased Market Size
The number of firms in a monopolistically competitive industry and the prices they charge
are affected by the size of the market. In larger markets there usually will be both more firms and more sales per firm; consumers in a large market will be offered both lower prices and a greater variety of products than consumers in small markets.
AC = F/Q + c = n X F/S + c.
An increase in total sales 5 will reduce average costs for any given number of firms n. The reason is that if the market grows while the number of firms is held constant, sales per firm will increase and the average cost of each firm will therefore decline. Thus if we compare two markets, one with higher 5 than the other, the CC curve in the larger market will be below that in the smaller one.
P = c+ 1/(b X n).
The size of the market does not enter into this equation, so an increase in S does not shift the PP curve.
Gains from an Integrated Market: A Numerical Example
International trade can create a larger market. automobiles are produced by a monopolistically competitive industry. The demand curve facing any given producer of automobiles is described by equation (6-5), with b = 1/30,00 0 (this value has no particular significance; it was chosen to make the example come out neatly).
Q = S x [1/n - (1/30,000) X (P - P)],
where Q is the number of automobiles sold per firm, S the total sales of the industry, n the number of firms, P the price that a firm charges, and P the average price of other firms.
The cost function for producing automobiles is described by equation (6-3), with a fixed cost F = $750,000,000 and a marginal cost c = $5000 per automobile (again these values are chosen to give nice results). The total cost is
The average cost curve is therefore
C = 750,000,000 + (5000 X Q).
AC = (750,000,000/0 + 5000.
Suppose there are two countries, Home and Foreign. Home has annual sales of 900,000 automobiles; Foreign has annual sales of 1.6 million. The two countries are assumed, for the moment, to have the same costs of production.
Home would have six automobile firms, selling at a price of $10,000 each To confirm that this is the long-run equilibrium, we need to show both, that the pricing equation (6-10) is satisfied and that the price equals average cost. Substituting the actual values of the marginal cost c, the demand parameter b, and the number of Home firms n into equation (6-10), we find
P = $10,000 = c + 1/(b X n) = $5000 + l/[( 1/30,000 ) X 6] = $5000 + $5000,
So the condition for profit maximization that marginal revenue equal marginal costis satisfied. Each firm sells 900,000 units/6 firms = 150,000 units/firm. Its average cost is therefore
AC = ($750,000,000/150,000) + $5000 = $10,000.
The market is for 1.6 million automobiles, the curves intersect at n = 8, P = 8750. That is, in the absence of trade Foreign’s market would support eight firms, each producing 200,000 automobiles, and selling them at a price of $8750.
P = $8750 = c + 1/(b X n) = $5000 + l/[( 1/30,000 ) X 8] = $5000 + $3750,
AC = ($750,000,000/200,000) + $5000 = $8750.
Now suppose it is possible for Home and Foreign to trade automobiles costlessly with one another. By drawing the PP and CC curves one more time, we find that this integrated
Economies of Scale and Comparative Advantage
Monopolictic competitive assumes that the cost of production is the same in both countries and that trade is costless. Each of these countries has two factors of production, capital and labor.
A Monopolistically competitive industry in which a number of firms all produce differentiated products. Because of economies of scale, neither country is able to produce the full range of manufactured products by itself; thus, although both countries may produce some manufactures, they will be producing different things. The monopolistically competitive nature of the manufactures industry makes an important difference to the trade pattern, a difference that can best be seen by looking at what would happen if manufactures were not a monopolistically competitive sector.
If manufactures were not a differentiated product sector, we know from Chapter 4 what the trade pattern would look like. Because Home is capital-abundant and manufactures capital-intensive, Home would have a larger relative supply of manufactures and would therefore export manufactures and import food. Schematically, we can represent this trade pattern with a diagram like Figure 6-6. The length of the arrows indicates the value of trade in each direction; the figure shows that Home would export manufactures equal in value to the food it imports.
If we assume that manufactures is a monopolistically competitive sector (each firm’s products are differentiated from other firms’), Home will still be a net exporter of manufactures and an importer of food. However, Foreign firms in the manufactures sector will produce products different from those that Home firms produce. Because some Home consumers will prefer Foreign varieties, Home, although running a trade surplus in manufactures, will import as well as export within the manufacturing industry. With manufactures monopolistically competitive, then, the pattern of trade will look like Figure 6-7.
Economies of Scale and Market Structure
External and internal economies of scale have different implications for industry structure. An industry where economies of scale are purely external will usually consist of many small firms and perfect competition. Internal scale economies, by contrast, gives large companies the cost advantages of smaller and leads to imperfectly competitive market structure.
The theory of imperfect competition. In a perfectly competitive market where there are many buyers and sellers, none of which is most of market firms is a price taker. In imperfect competition, then, the company realized that they could affect the price of their products and that they can sell more only by reducing their prices. Imperfect competition are the characteristics of the two industries where there are only a few large producers and industry. In this situation every company sees itself as a price maker.
where Q is the number of units the firm sells, P the price it charges per unit, and A and B are constants. We show in the appendix to this chapter that in this case marginal revenue is
implying
Marginal revenue = MR = P - Q/B, (6-2)
P - MR = Q/B.
Equation (6-2) reveals that the gap between price and marginal revenue depends on the initial sales Q of the firm and the slope parameter B of its demand curve. If sales quantity, Q, is higher, marginal revenue is lower, because the decrease in price required to sell a greater quantity costs the firm more. The greater is B, that is. the more sales fall for any given increase in price and the closer marginal revenue is to the price of the good. Equation (6-2) is crucial for our analysis of the monopolistic competition model of trade (pp. 132-150).
Average and Marginal Costs.
AC is total cost divided by its output. The downward slope reflects our assumption that there are economies of scale, so that the larger the firm’s output is the lower are its costs per unit. MC represents the firm’s marginal cost (the amount it costs the firm to produce one extra unit). We know from basic economics that when average costs are a decreasing function of output, marginal cost is always less than average cost. Thus MC lies below AC.
Equation (6-2) related price and marginal revenue. There is a corresponding formula relating average and marginal cost. Suppose the costs of a firm, C, take the form
C = F + c X Q, (6-3)
where F is a fixed cost that is independent of the firm’s output, c is the firm’s marginal cost, and Q is once again the firm’s output. (This is called a linear cost function.) The fixed cost in a linear cost function gives rise to economies of scale, because the larger the firm’s output, the less is the fixed cost per unit. Specifically, the firm’s average cost (total cost divided by output) is
Average cost = AC = C/Q = F/Q + c (6-4)
Monopolistic Competition
A firm making high profits normally attracts competitors. Thus situations of pure monopoly are rare in practice. Instead, the usual market structure in industries characterized by internal economies of scale is one of oligopoly.
in oligopolies the pricing policies of firms are interdependent. Each firm in an oligopoly will, in setting its price, consider not only the responses of consumers but also the expected responses of competitors. These responses, however, depend in turn on the competitors’ expectations about the firm’s behavior and we are therefore in a complex game in which firms are trying to second-guess each others’ strategies.
In monopolistic competition models two key assumptions are made to get around the problem of interdependence. First, each firm is assumed to be able to differentiate its
product from that of its rivals. That is, because they want to buy this firm’s particular product, the firm’s customers will not difficult to buy other firms’ products because of difference prices. Second, each firm is assumed to take the prices charged by its rivals as given that is, it ignores the impact of its own price on the prices of other firms. As a result, the monopolistic competition model assumes that even though each firm is in reality facing competition from other firms, it behaves as if it were a monopolist hence the model’s name.
Before we can examine trade, however, we need to develop a basic model of monopolistic competition. Let us therefore imagine an industry consisting of a number of firms. These firms produce differentiated products, that is, goods that are not exactly the same but that are substitutes for one another. Each firm is therefore a monopolist in the sense that it is the only firm producing its particular good, but the demand for its good depends on the number of other similar products available and on the prices of other firms in the industry.
Assumptions of the Model.
We would expect a firm to sell more the larger the total demand for its industry’s product and the higher the prices charged by its rivals. On the other hand, we expect the firm to sell less the greater the number of firms in the industry and the higher its own price. A particular equation for the demand facing a firm that has these properties is2
Q = S (1/n -b(P- ˉP)) (6-5)
where Q is the firm’s sales, S is the total sales of the industry, n the number of firms in the industry, b a constant term representing the responsiveness of a firm’s sales to its price, P the price charged by the firm itself , and ˉP the average price charged by its competitors. If all firms charge the same price, each will have a market share 1/n. A firm charging more than the average of other firms will have a smaller market share, a firm charging less a larger share.
It is helpful to assume that total industry sales S are unaffected by the average price P charged by firms in the industry. That is, we assume that firms can gain customers only at each others’ expense. This is an unrealistic assumption, but it simplifies the analysis and helps focus on the competition among firms. In particular, it means that S is a measure of the size of the market and that if all firms charge the same price, each sells S in units.
Market Equilibrium.
When the individual firms are symmetric, the state of the industry can be described without enumerating the features of all firms in detail. To analyze the industry, for example to assess the effects of international trade, need to determine the number of firms n and the average price they charge P.
method for determining n and P involves three steps.
(1) First, derive a relationship between the number of firms and the average cost of a typical firm. this relationship is upward sloping; that is, the more firms there are, the lower the output of each firm, and thus the higher its cost per unit of output.
(2) next show the relationship between the number of firms and the price each firm charges, which must equal P in equilibrium. this relationship is downward sloping
(3) Finally,when the price exceeds average cost additional firms will enter the industry, while when the price is less than average cost firms will exit. So in the long run the number of firms is determined by the intersection of the curve that relates average cost to n and the curve that relates price to n.
1. The number of firms and average cost.
average cost depends on the size of the market and the number of firms in the industry:
AC = F/Q + c = n X F/S + c. (6-6)
Equation (6-6) tells us that other things equal, the more firms there are in the industry the higher is average cost. The reason is that the more firms there are, the less each firm produces. The upward-sloping relationship between n and average cost is shown as CC in Figure 6-3.
The equilibrium price and number of firms occurs when price equals average cost, at the intersection of PP and CC.
2. The number affirms and the price. The price the typical firm charges also depends on the number of firms in the industry. In general, we would expect that the more firms there are, the more intense will be the competition among them, and hence the lower the price. This turns out to be true in this model, but proving it takes a moment.
First recall that in the monopolistic competition model firms are assumed to take each others’ prices as given; that is, each firm ignores the possibility that if it changes its price other firms will also change theirs. If each firm treats P as given, we can rewrite the demand curve (6-5) in the form
Q = {S/n + S x b x ‘P) - S X b X P, (6-7)
where b is the parameter in equation (6-5) that measured the sensitivity of each firm’s market share to the price it charges. Now this is in the same form as (6-1), with S/n + S X b X P in place of the constant term A and 5 X b in place of the slope coefficient B. If we plug these values back into the formula for marginal revenue (6-2), we have a marginal revenue for a typical firm of
MR = P - Q/(S X b). (6-8)
Profit-maximizing firms will set marginal revenue equal to their marginal cost c, so that
MR = P – Q/(S Xb) = c,
which can be rearranged to give the following equation for the price charged by a typical firm:
P = c + Q/(S X b). (6-9)
We have already noted, however, that if all firms charge the same price, each will sell an amount Q = S/n. Plugging this back into (6-9) gives us a relationship between the number of firms and the price each firm charges:
P = c + 1/(bxn). (6-10)
3. The equilibrium number of firms.
The downward-sloping curve PP shows that the more firms there are in the industry, the lower the price each firm will charge. This makes sense: The more firms there are, the more competition each firm faces. The upward-sloping curve CC tells us that the more firms there are in the industry, the higher the average cost of each firm. This also makes sense: If the number of firms increases, each firm will sell less, so firms will not be able to move as far down their average cost curve.
The two schedules intersect at point E, corresponding to the number of firms n2 The significance of n2 is that it is the zero-profit number of firms in the industry. When there are n2 firms in the industry, their profit-maximizing price is P2, which is exactly equal to their average cost AC2. point E describes the industry’s long-run equilibrium.
To see why, suppose that n were less than n2, say n1 Then the price charged by firms would be P1 while their average cost would be only AC1 Thus firms would be making monopoly profits. Conversely, suppose that n were greater than n2, say n1 Then firms would charge only the price P1 while their average cost would be AC1 Firms would be suffering losses. Over time, firms will enter an industry that is profitable, exit one in which they lose money. The number of firms will rise over time if it is less than n2, fall if it is greater. This means that n2 is the equilibrium number of firms in the industry and P2 the equilibrium price.4
Limitations of the Monopolistic Competition Model
Key elements of markets in monopolistic competition where there are economies of scale and thus imperfect competition. However, few industries are well described by monopolistic competition. Instead, the most common market structure is one of small-group oligopoly, where only a few firms are actively engaged in competition.
Two kinds of behavior arise in the general oligopoly setting that are excluded by assumption from the monopolistic competition model. The first is collusive behavior. Each firm may keep its price higher than the apparent profit-maximizing level as part of an understanding that other firms will do the same; since each firm’s profits are higher if its competitors charge high prices, such an understanding can raise the profits of all the firms (at the expense of consumers). Collusive price-setting behavior may be managed through explicit agreements (illegal in the United States) or through tacit coordination strategies, such as allowing one firm to act as a price leader for the industry.
The monopolistic competition approach to trade is attractive because it avoids these complexities. Even though it may leave out some features of the real world, the monopolistic competition model is widely accepted as a way to provide at least a first cut at the role of economies of scale in international trade.
Monopolistic Competition and Trade
In industries where there are economies of scale, both the variety of goods that a country can produce and the scale of its production are constrained by the size of the market. Each country can specialize in producing a narrower range of products than it would in the absence of trade; yet by buying goods that it does not make from other countries, each nation can simultaneously increase the variety of goods available to its consumers. As a result, trade offers an opportunity for mutual gain even when countries do not differ in their resources or technology.
The Effects of Increased Market Size
The number of firms in a monopolistically competitive industry and the prices they charge
are affected by the size of the market. In larger markets there usually will be both more firms and more sales per firm; consumers in a large market will be offered both lower prices and a greater variety of products than consumers in small markets.
AC = F/Q + c = n X F/S + c.
An increase in total sales 5 will reduce average costs for any given number of firms n. The reason is that if the market grows while the number of firms is held constant, sales per firm will increase and the average cost of each firm will therefore decline. Thus if we compare two markets, one with higher 5 than the other, the CC curve in the larger market will be below that in the smaller one.
P = c+ 1/(b X n).
The size of the market does not enter into this equation, so an increase in S does not shift the PP curve.
Gains from an Integrated Market: A Numerical Example
International trade can create a larger market. automobiles are produced by a monopolistically competitive industry. The demand curve facing any given producer of automobiles is described by equation (6-5), with b = 1/30,00 0 (this value has no particular significance; it was chosen to make the example come out neatly).
Q = S x [1/n - (1/30,000) X (P - P)],
where Q is the number of automobiles sold per firm, S the total sales of the industry, n the number of firms, P the price that a firm charges, and P the average price of other firms.
The cost function for producing automobiles is described by equation (6-3), with a fixed cost F = $750,000,000 and a marginal cost c = $5000 per automobile (again these values are chosen to give nice results). The total cost is
The average cost curve is therefore
C = 750,000,000 + (5000 X Q).
AC = (750,000,000/0 + 5000.
Suppose there are two countries, Home and Foreign. Home has annual sales of 900,000 automobiles; Foreign has annual sales of 1.6 million. The two countries are assumed, for the moment, to have the same costs of production.
Home would have six automobile firms, selling at a price of $10,000 each To confirm that this is the long-run equilibrium, we need to show both, that the pricing equation (6-10) is satisfied and that the price equals average cost. Substituting the actual values of the marginal cost c, the demand parameter b, and the number of Home firms n into equation (6-10), we find
P = $10,000 = c + 1/(b X n) = $5000 + l/[( 1/30,000 ) X 6] = $5000 + $5000,
So the condition for profit maximization that marginal revenue equal marginal costis satisfied. Each firm sells 900,000 units/6 firms = 150,000 units/firm. Its average cost is therefore
AC = ($750,000,000/150,000) + $5000 = $10,000.
The market is for 1.6 million automobiles, the curves intersect at n = 8, P = 8750. That is, in the absence of trade Foreign’s market would support eight firms, each producing 200,000 automobiles, and selling them at a price of $8750.
P = $8750 = c + 1/(b X n) = $5000 + l/[( 1/30,000 ) X 8] = $5000 + $3750,
AC = ($750,000,000/200,000) + $5000 = $8750.
Now suppose it is possible for Home and Foreign to trade automobiles costlessly with one another. By drawing the PP and CC curves one more time, we find that this integrated
Economies of Scale and Comparative Advantage
Monopolictic competitive assumes that the cost of production is the same in both countries and that trade is costless. Each of these countries has two factors of production, capital and labor.
A Monopolistically competitive industry in which a number of firms all produce differentiated products. Because of economies of scale, neither country is able to produce the full range of manufactured products by itself; thus, although both countries may produce some manufactures, they will be producing different things. The monopolistically competitive nature of the manufactures industry makes an important difference to the trade pattern, a difference that can best be seen by looking at what would happen if manufactures were not a monopolistically competitive sector.
If manufactures were not a differentiated product sector, we know from Chapter 4 what the trade pattern would look like. Because Home is capital-abundant and manufactures capital-intensive, Home would have a larger relative supply of manufactures and would therefore export manufactures and import food. Schematically, we can represent this trade pattern with a diagram like Figure 6-6. The length of the arrows indicates the value of trade in each direction; the figure shows that Home would export manufactures equal in value to the food it imports.
If we assume that manufactures is a monopolistically competitive sector (each firm’s products are differentiated from other firms’), Home will still be a net exporter of manufactures and an importer of food. However, Foreign firms in the manufactures sector will produce products different from those that Home firms produce. Because some Home consumers will prefer Foreign varieties, Home, although running a trade surplus in manufactures, will import as well as export within the manufacturing industry. With manufactures monopolistically competitive, then, the pattern of trade will look like Figure 6-7.
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Dalam perkembangannya coklat tidak hanya sebagai minuman, tetapi juga untuk bahan pembuat makanan lainnya. Selain rasanya enak, coklat juga bisa membuat umur seseorang lebih panjang karena kandungan antioksidan fenol. fenol juga bermanfaat dalam bagi jantung. Coklat mempunyai kemampuan untuk menghambat oksidasi kolesterol LDL (kolesterol jahat) dan meningkatkan fungsi kekebalan tubuh, sehingga dapat mencegah risiko penyakit jantung koroner dan kanker.
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