Scale effect. It is considered that the firm has economy at scales if its LAC decrease while the output increases. It is known that where the scale effect is considerable, rather effective production is possible only at a small number of producers, in other words, efficiency demands that capacities of each firm occupied a big share of the cumulative market.
The elementary indicator measuring concentration of the market is the concentration coefficient. It shows a percentage ratio of all sales which are calculated for a certain number of firms. It is most widely used, so-called, the level of concentration of four firms which is the price of shares of the market of four most major companies.
The essence of model of Kurno consists that each firm accepts the volume of release of the competitor to constants, and then itself makes decisions. To see as it occurs, we will consider possible decisions of firm A. Let's allow firm A considers that other firm B will make nothing, then the curve of demand of firm A will coincide a curve of a market demand. In figure 5 it is shown as D1 (that means a curve of demand of firm A provided that the firm B makes nothing. Figure 5 also shows corresponding curve MR1 (. We will assume that MC1 of firm A are constant. As shown in figure 5 the output of firm A maximizing profit is equal 50 units (a point, where to MR1=MC. Therefore the Firm A will make 50 units so far the firm B stays idle.
To sustain the competition, the manufacturer of goods constantly controls the costs, compares them with expenses of competitors, and due to decrease in the expenses, and also improvement of quality of goods, seeks to overtake competitors.
Tariffs of cargo and passenger transport. This type of the prices represents a payment for movement of freights and passengers which is raised by the transport organizations from senders or consignees, also from the population.
It is reasonable to assume that production of the competitor are constant only when firms choose the output only once because their outputs cannot change in a consequence. It is also reasonable when they are in Kurno's balance since then anybody from them will have no desire to change the output.
For example, if for Eda and Edb modules Eda inequality
The indicator of level of concentration has some restrictions. That it does not consider a difference between branches in which one firm dominates in the market, and in what four or more firms divide it almost equally is obvious. The market in which one firm controls 77%, the others from 23% on 1% will have the same level of concentration, as well as the market where control of each firm over the market does not exceed 25%.
In conditions of modern market economy the choice of this or that strategy of pricing, purpose of these or those types of the prices of the production become more and more necessary an element of activity of any firm, and also has to form a basis of new market researches part in which has to take, whenever possible, and the top management of firm.
The principle of communicating vessels is the cornerstone of interrelation of all prices. The change in price in one of main units of this system will quickly enough be transferred on a chain to all other blocks (for example, the change in price for energy carriers).
Let's assume, the firm sells all volume of the made production at uniform price. To maximize profit she chooses the price P * and Q volume * on crossing of MR and MS. The firm already then would be profitable, but her heads think of how to make firm of even more profitable.
Other approach to the competition which the dominating firm can use, strategy of multinomenclature production is. Though goods of the dominating firm can few than differ and compete with each other, closing of opportunity to other firms will be result to enter the market with the production (for example, PROCTER&GAMBLE).