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34 Cards in this Set
- Front
- Back
- 3rd side (hint)
5 Characteristics of a Competitive Market |
1) Perfectly Competitive Mkt 2) many buyers, many sellers 3) Identical (Homogeneous) Product 4) Buyers & Sellers are price takers(?) 5) Firms can freely enter/exit |
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Obj. Of Competitive Firm |
Maximize Profits when total revenue exceeds total costs by greatest amt. Firm will weigh marginal revenue/benefits with marginal cost. |
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In a competitive firm, when MR>MC |
Firm increase output and raise profit |
Pay attention to signs and relation to output |
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In a competitive firm, when MR<MC |
Firm decrease output and raise profit |
Pay attention to signs and relation to output |
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In a competitive firm, when MR=MC |
Firm is maximizing profit |
Equal Rights does Maximum Good |
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Average Revenue Equation |
Total Revenue / Quantity |
Revenue from each unit sold |
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Marginal Revenue Equation |
♤TR/♤Q |
Revenue recieved when next unit is sold |
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P= (definition in regards to competitive firm and equal to...) |
Market Price, which in a competitive firm equala Avg Revenue and Marginal revenue and is taken as given in the competitive firm. |
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Short Run Shutdown Rule |
Gtfo if |
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Long Run Exit Rule |
If P > ATC or P= ATC ; firm produces. In other words, if the Economic profit is greater or equal than zero, the firm should produce. (ATC, think of as LR unit cost) (If price < atc, gtfo) |
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Profit Fn |
(P-ATC)Q. |
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LR supply upward shift |
A) ltd. raw materials B) increase q.supplied ->increased demand for resources -> increase prices of inputs and raise codts -> firms increase price for higher production cost C) firms have different costs D) some firms earn profit in long run LONG RUN ALWAYS MORE ELASTIC |
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Monopoly |
Sole Producer of Product (no competition) and faces down slope market demand. Also has pricing power and can charge above marginal cost. makes the prices! |
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Monopolist Revenue |
Average Revenue > Marginal Revenue |
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Output Effect in a Monopoly |
As Q Rises, Total Revenue Increases (assuming everything stays same)` |
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Price Effect in a Monopoly |
As P falls, Total Revenue Decreases (assuming everything stays same) NOTE: IN COMPETITIVE FIRMS: NO PRICE EFFECT AS PRICE=AVG. REV=MARG REV. |
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How does a monopoly sell more? |
Lower Price. Whilst this reduces revenue, you still sell more. |
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Deadweight in the Monopoly |
Set by Marginal Cost and Demand's intersection, and straightedge right of Monopoly Price |
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Three Barriers to Entry for Monopoly's Existence |
1) Monopoly Ownership of Vital Input (eg. DeBeers Diamonds had 80% mkt share and controlled industry) 3) Natural Monopolies (market only can supply |
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1st Degree Price Discrimination |
Selling different costs to different markets- where price is exactly equal to value of good. Difficult in Practice. |
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2nd Degree Price Discrimination
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Bulk Discounts, Quantity Discounts, Cable Company Bundles |
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3rd Degree Price Discrimination |
Movie Tickets, Restaurant Prices, Airline Tickets, Tuition |
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LONG RUN v. SHORT RUN |
The Long Run has no fixed costs, whereas the Short Run reflects fixed and variable costs. |
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Imperfect Competition |
In between 2 Extremes of Monopoly and Perfect Competition.
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Oligopy Characteristics |
Few Firms, Each produces identical/similar products (Aircraft Mftg., Tennis Balls) |
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Monopolistically Compettive Characteristics |
Many Firms, Differentiated Product, Faces downward sloping demand representing consumers with preference for that type of product. Free Entry/Exit (movies, novels, cars) |
Different strokes for different folks and easy out after your one night stand |
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4 Firm concentration Ratio |
SALES OF 4 LARGEST FIRMS/TOTAL SALES OF MARKET |
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Pricing and Output for the Monopolistically Comp. Firm |
Produce where MR=MC and price off of given demand curve. Like a Monopoly, but differing demand curve. No profit in long term. |
MR MCDonald and PAT C |
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Characteristics of Long Run Equillibrium |
P>MC and P=ATC on downward slope of ATC Curve. (P=ATC , so Econ Profit Zero) |
Price is greater than changes but evens out! |
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Differences between Monopolistically Comp and Perfectly Comp |
1) Perfect Comp firm is at most efficient scale of production, Mono Comp is less than optimal. |
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Excess Capacity in terms of Monopolistic Competition |
It has the ability to produce at most efficient scale, but it would need to reduce it's price. Forgoes this so it can attract most customers |
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Markup Pricing in terms of Monopolistic Competition |
Market Power is there- as good produced is differentated-scarce and can price above Marg Cost. Long run has zero profit. |
Markup Pricing has the same initials, like the amount of ***** I give and is priced above *HEAVY BLUE SIGH* |
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Why is regulation of Monopolistically Compettive Firms difficult? |
Too many firms to regulate and Long Run Econ Profit is 0 |
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Game Theory |
how do you act in strategic situations |
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