Econ Ch. 8
diseconimies of scale
exist when long-run average costs increase as output increases
economies of scope
exist when the total cost of producing 2 products in the same firm is lower than when the products are produced by separate firms
economies of scale
exists when long-run average costs decline as output increases
when firms in monopolistic competiton sustain economic losses, firms tend to
exit the market
cost complementary exist when
multiproduct cost function when the marginal cost of producing one output is reduced when another product is increased (doughnuts and doughnut holes)
monopolistic competition uses
niche marketing green marketing
in order to maximize profits in the short run, a manger must determine how much output to produce given
only variable inputs in his control
what is the price elasticity of demand facing an individual firm in perfect competition
perfectly elastic
what happens in a perfectly competitive industry when firms earn profits?
price falls profits of remaining firms fall supply increases
in perfect competition, profits are maximized at a level of output such that
the vertical distance between the revenue line and cost curve is greatest
Key conditions for perfect competition
1. many buyers and sellers 2. each firm in the market produces a homogeneous product 3. buyers and sellers have perfect information 4. no transaction costs 5. free entry and exit
define the competitive firm's demand
Df=P=MR
a perfectly competitive firm maximizes profits at a level of output such that market price
EQUALS marginal cost
To maximize profits, what level does a monopolistic competitive firm produce
M(R)Q= M(C0Q
a firm should shut down where
P < AC
long run properties of perfect competiton include
P=MC P= min AC
in the long run perfectly competitive firms produce a level of output such that
P=MC P=minimum of AC
key difference in monopoly and monopolistic competition
There are no barriers to entry in monopolistic competition
monopolistic competition produces outputs where
ATC> minimum average cost P>MC P=ATC
ex of perfect competition
agriculture computer software
marginal revenue is
change in total revenue from one-unit change in output
The monopolist is restricted to price-quantity combinations that lie on the demand curve as a result of decisions made by
consumers
since each producer has no influence on price, the demand curve for the individual firm is
horizontal line equal to market price
when a monopolist increases output by one unit, total revenue
increases by less than price
economies of scope tend to encourage
larger firms
when many buyers and sellers freely enter and exit a market having similar, yet differentiated products, it is called
monopolistic competition
fundamental difference between monopolistic competition and perfect competition
products in monopolistic competition are differentiated
in perfect competiton
profit= revenues - costs
pi= P(Q) -C(Q) defines
profits
as firms exit a competitive industry in the long run, what happens to the profits of the remaining firms
profits increase due to increased market price
on a graph, profits are given by vertical distance between the cost function and
revenue line
a period of time where at least one input is fixed is called the
short run
monopoly
situation where a single firm serves an entire market for a good which there are no close substitutes
marginal revenue is the
slope of the total revenue curve
in a perfectly competitive market where firms chose output based on price,
supply curves exist
