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30 Cards in this Set

  • Front
  • Back
allocative efficiency (concept)
1. all consumers willing to pay cost of production gets the good
2. social welfare is maximized
productive efficiency (concept)
1. P = min ATC
2. maximize production
allocative efficiency (formula)
price = marginal cost
productive efficiency (formula)
price = minimum ATC
dynamic efficiency
if monopolist spends profits on new technology, then (we might get higher growth) higher growth is possible (a case FOR monopoly)
reasons for advertising
1. increase demand
2. introduce a new product
3. take advantage of economies of scale
types of advertising
1. informative (reduce search and info costs)
2. persuasive (provide little info., try to convince consumer)
consumer benefits of advertising
1. introduce a new product (S increases P decreases)
2. economies of scale ( costly --> P decreases)
3. reduce search and info costs
criticisms of advertising
1. is a nonproductive of wasted resources for "stealing" profits
2. it increases prices (costs go up so profit goes down)
case against monopoly competition
1. P > MC (no allocative efficiency)
2. P > min LRATC (no productive eff.)
3. P > min SRATC (excess capacity)

** price is BIGGER than all these costs
case for monopoly competition
1. variety good
2. consumers value options
LR competitive equilibrium (formulas)
1. LR economic profit = 0
2. Qs = Qd
Marginal reveune (forumla)
MR = change total revenue
a firm that is the only seller of a good, with no competition
price taker
(in a ompetitive market), buyers and sellers cannot decide what price they will accept, since they have no significant influence on the much larger market. Insteadm they have to accept the market price and make their decisions accoedingly
price discrimination
practice of charging different groups of buyers different prices based on differences in elasticity rather than cost
conditions for price discrimination
1. some monopoly power
2. two groups of buyers with different Ep
3. prevention of resale
Monopolistic competition
1. many small buyers and sellers
2. differentiated products (products that vary from one producer to the next)
3. no barriers to entry or exit
homogeneous products
products that are identical, no matter which firms in the industry produce the commodities
barrier to entry (def.)
exist when investors find obstacles to joining a profitable industry. This includes anything that makes producing and selling output more difficult for a new firm than for an existing one.
types of barriers to entry
1. public franchise
2. government license
3. economies of scale
normal rate of return
the minimum profit necessicary to attract and retain investment
factors that shift demand
demand and price are inveresly related.
affected by changes in income, price and relative price
profit (formula)
quantity x (price - average cost)
total revenue (formula)
price x quantity
profit maximization (formula)
breakeven price (formula)
economic profit = 0
shutdown price (formula)
price = average variable cost
total cost (formula)
total fixed cost + total variable cost
characteristic of perfect competition
1. homogeneous products
2. no barriers to entry or exit
3. perfect information