TECHNOLOGY
Produce where MR = MC
What is rule #1?
List the 6 characteristics of Perfect Competition.
A market that meets the conditions of 1) many buyers and sellers, 2) all firms selling identical products 3) no barriers to entry 4) price takers 5) profit maximizers and 6) perfect information
List the 6 characteristics of Monopolistic Competition.
1) Lots of buyers and Sellers 2)No barriers to entry 3)Differentiated Products (similar but different) 4)Downward sloping demand curve 5)Perfect information 6)Profit maximizing
List the 6 characteristics of Oligopolies.
1) Lots of buyers but Few Sellers 2)Substantial barriers to entry 3)Uniform or similar Product 4)Firms behave strategically 5)Perfect information 6)Profit maximizing
List the 7 characteristics of Monopolies.
1)only one producer of a good or service 2)unique product 3)barriers to entry prevent competition 4)a single producer faces the entire downward sloping demand curve 5)"price setter" 6)perfect information 7)seller maximizes profit
These two extremes are theoretical
What are Perfect competition and Monopoly?
These firms can sell as much as they want at the current market price, but cannot sell anything at all if they raise the price.
What are firms in perfectly competitive markets?
or What are "price takers?"
_________ attract imitators (substitutes). People will enter market and produce similar things (ex: different brands)
What are economic profits?
*NOTE: zero long-run economic profits
Cartel, Contestable markets, & Duopoly
What are examples of oligopolies?
TR / q --> Total revenue divided by quantity
What is the formula for AR (Average Revenue)?
The quantity where MC is equal to MR
What is the profit maximizing level of output?
_________ reduce demand (still downward sloping)
What are substitutes?
Small number of firms
Same product
Collude to act like a monopoly
q * (P - ATC) --> Quantity multiplied by the difference between Price and Average Total Cost
What is the formula for economic profits?
This is what always occurs when economic profits exist in the short run in perfectly competitive markets.
What is the entry of firms?
Consumers get choices --> increase consumer surplus, but some ____________ remains
*What is the tradeoff for choices in Monopolistic Competition?
What is allocative inefficiency?
A strategy that is the best for a firm, no matter what strategies other firms use
*Think game theory*
What is a dominant strategy?
ΔTR / Δq -->change in total revenue divided by change in quantity
What is the formula for MR (Marginal Revenue)?
If a firm is producing where Price (MR) = MC AND = min ATC
What is earning zero economic profits?
Charging a price greater than marginal cost and not producing at minimum average total cost?
What are two reasons Monopolistic Competition is inefficient?
Explain what collusion is, what situation it arises in, and what is done about it.
Owners of firms (or countries in the case of OPEC) get together to restrict aggregate output to the monopoly quantity (MR=MC in the market)
Allocate output among the colluding firms
Must monitor each other's output to make sure aggregate output remains at the monopoly level
Telecommunications network, oil & gas companies, water sewers & waste management, electric power supply & grids
What are examples of natural monopolies?