Economics M8
Perfect Competition
Buyers and sellers operate independently of each other and individual actions do not influence the market. Firms are both price-takers in both input and output markets. In equilibrium, each firm is identical in all respects - size, production techniques, prices charged, resources used, etc. All firms earn ZERO economic profits
Sources of Monopoly Power
Economies of scale Economies of scope Cost Complementary Patents and other legal barriers
Economies of scale - exist whenever long-run average costs decline as output increases. Economies of scope - exists when the total cost of producing two products within the same firm is lower than when the products are produced by separate firms. Cost complementarity - exists in a multiproduct cost function when the marginal cost of producing one output is reduced when the output of another product is increased; that is, when an increase in the output of product 2 decreases the marginal cost of producing output Patents and other legal barriers - Government may grant an individual or a firm a monopoly right. Ex. City may prevent another utility company from competing against the local utility company.
Economies of scale - exist whenever long-run average costs decline as output increases. Economies of scope - exists when the total cost of producing two products within the same firm is lower than when the products are produced by separate firms. Cost complementarity - exists in a multiproduct cost function when the marginal cost of producing one output is reduced when the output of another product is increased; that is, when an increase in the output of product 2 decreases the marginal cost of producing output Patents and other legal barriers - Government may grant an individual or a firm a monopoly right. Ex. City may prevent another utility company from competing against the local utility company.
Economies of scale
Exist whenever long-run average costs decline as output increases.
Cost complementarity
Exists in a multiproduct cost function when the marginal cost of producing one output is reduced when the output of another product is increased; that is, when an increase in the output of product 2 decreases the marginal cost of producing output.
Economies of scope
Exists when the total cost of producing two products within the same firm is lower than when the products are produced by separate firms.
Patents and other legal barriers
Government may grant an individual or a firm a monopoly right. Ex. City may prevent another utility company from competing against the local utility company.
Monopoly
Market structure in which a single firm serves an entire market for a good that has no close substitutes.
Shutdown if:
P < AVC (Firm must still pay FC)