Shiller Text. The Chapter in Question Covers

¶ … Shiller text. The chapter in question covers competition. The five main learning objectives of the chapter are to identify the characteristics of perfectly competitive firms and markets, illustrate how total profits change as output expands, describe how the profit-maximizing rate of output is found, recite the determinants of competitive market supply and explain why profits get eliminated in competitive markets. Main Points The first main point of the chapter is market structure. Figure 6.1 shows a spectrum that includes perfect competition, monopolistic competition, oligopoly, duopoly and then monopoly.

The chapter makes reference to terms like how firms wield their power in the market (market power) and what each of the above market structure types make reference to. On page 119, the condition known as perfect competition, where no firm in particular has market power, is described. Page 120 and 121 talk about price takers and price setters and then the book shifts into market demand vs. firm demand. Page 122 speaks of the production decision that each firm must make and how the decision will affect both revenue and total profit.

This segues nicely into page 123 where it is talked about how to maximize profit given the market conditions that exist. Important subtopics of profit maximization including where to set the price, marginal cost, the profit-maximizing rate of output and so forth are all discussed as the book continues on pages 124 and 125. Total profit is discussed starting on 126 and it continues into page 127. The supply side of the revenue and profit equation is covered on page 128. The firm's supply is on 128 while market supply variables are discussed on page 129.

Competitive market supply is depicted in figure 6.7, which different charts showing the different general situations and dynamics that can arise. A firm's ability and preference to enter and exit an industry, and the market conditions that could or should lead to either, are discussed on pages 130 and 131. Thin margins, barriers to entry and so forth are all factors that should be considered per the text. The "sweet spot" of pricing, that being the equilibrium price, is covered starting on the bottom of page 132 and continues into the next page.

What is typified by low barriers to entering a market, as mentioned in the prior paragraph, are expanded on page 134 while the next page talks about the virtues of competition. These virtues include relentless profit squeeze, maximum efficiency, zero economic profits and the social value of losses. Contrary to what one might think, losses may very well mean that resources are not being harnessed and utilized in.