Econ final

marginal revenue

additional revenue a firm gets from one more unit (MBfirm)

firms maintain profit

as long as they have lower costs than the marginal firm

product positioning

how a firm differentiates its products relative to competing ones

wealth

how many assets (cars, homes, savings, stocks) you have

annual income

how much per year you make which varies so is not a great measure of consumption decisions

reputation and goodwill

make customers loyal by treating them well

regressive taxes

people with less money pay a higher share of their income (ex: sales tax).

Price in long term

tends toward the average cost of the marginal curve because if prices were raised, there would be entry, if they were lowered there would be losses and exit

market power

the ability of a firm to raise the prices it charges without losing business

marginal existing firm

the firm that would first leave the market given there are some in the market. has an economic profit of 0 or close but expects negative

average cost curve

the firm total cost vs the quantity produced. normally falls than rises because fixed costs decrease as costs are spread over more units and variable costs increase as inefficiencies rise

recipe for firm in imperfect competition

the marginal cost curve intersects the marginal revenue curve at the optimal Q, use that to go to the demand curve and find the price at that many units

progressive (income) tax

the more you make the more you pay

economic profit

the total revenue aka total economic costs which accounts for the opportunity costs and is the next best use of entrepreneurs time and money

natural monopolies

a market where it is most efficient for a single company to serve all

bargaining power

a person or firms ability to negotiate a better deal depending on a party's next best alternatives

advertising

a tool for positioning with the purpose of shifting the demand curve right and steepening the demand curve faced by the firm

permanent income

average lifetime income which is a greater reflection of consumption decisions

profit margin per unit

average revenue - average cost aka price -average cost determining if a firm should enter the market

social safety net

cash assistance, goods, and services provided by the government to help people at the bottom of the income distribution

positioning products optimally

comes from existing competitors, potential entrants, and potential substitute products

merger

companies become one which could restrict competition in a market or enhance competition although maybe the merged entity is more efficient

non price competition

competing to win customers by differentiating the product

price competition

competing to win customers by offering lower prices which can drive prices down in a market with similar goods and few firms or if there's no cost advantage

5 forces framework

competition attacks on a firms profits through positioning products optimally and increasing bargaining power

anti collusion rules

competitors are not permitted to collude

effective advertising

depends on market structure and type of good

ways in which firms differentiate

features, quality, customer service, design/style, reliability, convenience, subjective factors

supply side barrier

find cost advantages because if firms have lower costs than potential ones, they won't enter (even if marginal firm has 0 profits, another one with lower costs might have positive ones)

benefit of market power

firms can make a lot of money

entry/exit

in the short run there is none, but in the long run, firms can enter and exit. how long the short run is depends on market

affect of companies leaving

increase in demand, increase in your market power, increase in profit margin

goal of a business person

increase profits which includes beating current competition and scaring away potential

relationship specific investment

investment that is more valuable if the current relationship continues, most common for firms with a few large customers

collusion

keeping prices high

intergenerational mobility

kids outcomes independent of parents

merger review

large companies need government approval to merge

how to find cost advantage

learning through experience to produce at lower costs, mass production, cheaper inputs, and making suppliers inputs more expensive

affect of new competition

left shift demand from losing customers, reduced market power due to more choices so flatter demand curve, profit margin shrinks

licensing requirements

makes it harder to open a new firm

perfect competition

many competitors, same product, flat market power curve, increase price by a penny and sell none, decrease and sell a lot

product differentiation

many small sellers but goods aren't identical, markets are characterized by monopolistic competition

safety net programs

means tested for social safety nets (ex: healthcare, subsidized rent), paid for by taxes

utility

measure if a persons well being

poverty

measured based on a number formula and if household income is below, you are considered poor, relative to your country

foregone wages

money not made by doing something else

income redistribution

mostly progressive till top 1%, taxes are a tool to make society better

positive economic profit decline

new rivals enter decreasing market share and power of existing firms decreasing quantity, price, and economic profit

monopoly market power

no competitors, unique product, market power and demand curve are the same since only seller in market

free entry

occurs until all firms have 0 economic profit aka AR=AC at one point if each firm has the same AC curve and all are earning profits

positioning tradeoff

on the demand side you want as many consumers as possible and be similar to rivals, but on the supply side you don't want to start pricey competition, so if price competition could be intense, differentiate

hold up problem

once a firm makes a relationship specific investment the other side might try to negotiate

oligopoly

only a few large sellers

economic profit

positive if average revenue is greater than average cost

patents

prevent competition for a specified amount of time

antimonopoly rules

regulating monopoly

negative economic profit increase

rivals exit increasing market share and power increasing quantity, price, and economic profit

deterrence strategies

scare away new firms from entering in ways such as a war chest of cash to fight entrants or developing a rep as a fighter

type of good

search goods vs experience goods

rational rule for marginal revenue

sell as long as MR>MC, as Q increases so does MC so eventually the firm won't want more

average revenue curve

shows the average revenue for each quantity you might sell aka firm demand curve

monopoly

single seller of good

con of market power

society is often worse of because firms try to get power to reduce competition which is bad for consumers, which the government fights by promoting competition

price takers

suppliers and demanders in perfect competition with no incentive than to buy or sell anything other than at market price, no control of the market price, and no market power

increasing bargaining power

suppliers trying to charge more and customers trying to pay less

marginal tax rate

tax on the next dollar you earn

costs of redistribution

taxes create deadweight loss and discourage work

sum of app cost of starting a business

the annual payment you need for it to be worth investing your time and money. if you accept a penny less you are worse off

utiliterianism

the belief that we should act to maximize total utility in society

marginal utility of income

the boost to well being for an extra dollar

marginal potential new firm

the firm that would first enter the market given there are some that might join. Has a 0 or close to 0 economic profit but expects positive

average cost

total cost over quantity aka the sum of the variable and fixed costs each over quantity

accounting profit

total revenue - total financial costs aka all of the money that goes in and out of a business (out of pocket costs)

average revenue

total revenue over quantity aka price

util

unit for utility, life satisfaction

entry of competitors

when existing companies have good profit it can attract new firms in the long run because it signals potential profit

peace of mind/stress

you could be working longer hours and feel stressed or could be opposite that you feel fulfilled

foregone interest

you invest money in business that could go in stocks

experience good

you need to experience to evaluate so firms might run persuasive advertisements with little information about a good

diminishing marginal utility of income

your 50000 dollar of income helps less than your 1000th

discount effet

in order to sell that next unit, the firm had to decrease price on all units losing revenue for each additional unit by 1pxQ

oligopolistic competition

Imperfect, few competitors, same or different products, same market power curve as monopolistic

how advertising is socially inefficient

a lot of it, especially persuasive, is wasteful because it serves to steal customers but society benefits when firms get surplus regardless of who

search good

easy to search info and evaluate before buying so a firm might do informational advertising providing info about the product

long run equilibrium

economic profit tends to 0 and that of the marginal firm is 0 given all have different MC curves

barriers to entry

existing firms make it harder to enter through demand side, supply side, regulatory, and deterrence

demand side barrier

existing firms try to keep customers so that they aren't affected when new ones enter through switching costs, reputation and goodwill, and network effects

consequences of hold up problem

for fear of being held up, firms might not make investments even if they're beneficial

opportunity costs of starting a business

foregone wages, foregone interest, peace of mind

regulatory strategies

getting the government to make it harder for new firms to enter through patents, new business regulations, licensing requirements, and lobbying

social insurance

government run programs that you pay in good times and help you in bad times, paid for by taxes

market power comp vs perfect comp

higher prices, lower quantity, higher profit of firm, firms with power might not be efficient because competition is not forcing them to be

new business regulations

hoops a firm has to jump through before opening

product differentiation

if a firm differentiates its product, it might appeal to some people who are willing to pay more and there is less price competition leading to more market power

who enters and exits

if a firm knows it will have economic profit, it will enter or stay. if it knows it will have 0 or negative, it will leave

output effect

if a firm sells 1 more it will get revenue from the additional unit

network effects

if a lot of people use a company's good, others might want to

market structure

if products are similar, firms will tend not to advertise because of free rider, if unique, then you can advertise the product rather than the brand, if it has imperfect substitutes, you advertise specific products aggressively to grab rival customers

switching costs

impediments that make it costly for customers to switch products

monopolistic competition

imperfect, many competitors, different products, market power curve has down slope but such that an increase in P will lose some customers but not all, steeper than demand