Lecture 21: Intro and cost curves Flashcards
How businesses behave depends on what?
The conditions in the market they supply
What are the conditions that businesses in the markets they supply?
- how many similar products are there
- is the entry easy or difficult
- are competitor’s products identical or just similar
What is a perfect substitute?
when the competitor’s products are identical
What is an imperfect substitute?
When the competitor’s products are similar but not identical
What is industrial organisation?
the study of how forms reacts to these and other market conditions
Describe a highly competitive market
many suppliers
low barriers to entry
zero economic profit in the long run
What are the two types of highly competitive markets and what type of product do you have in these markets?
- perfect competition if it is a homogenous product
- monopolistic competition if it is differentiated product
Describe a less competitive market
- difficult entry
- potential long run profitability
In perfect competition, Price =
Marginal cost
What are the two types of less competitive markets? Describe these markets
monopoly- one supplier, no good substitutes
oligopoly - few suppliers, same or close substitutes
Describe a market with perfect competition
highly competitive many suppliers low barriers to entry zero economic profit in the long run a homogenous product
Describe a market with monopolistic competition
highly competitive many suppliers low barriers to entry zero economic profit in the long run differentiated product
Describe a monopoly
- less competitive markets
- difficult entry
- potential long run profitability
- one supplier, no good substitutes
Describe an oligopoly
- less competitive markets
- difficult entry
- potential long run profitability
- few suppliers, same or close substitutes
What is zero economic profit?
normal level of profit
Define total revenue
the amount a firm receives for it’s sale of a product
Define total cost
the amount a firm pays for inputs into production
What is the equation for maximum profit?
π(q) = TR (q) - TC (q)
Define accounting profit
the firm’s total revenue minus the firm’s explicit cost
Define economic profit
total revenue minus opportunity cost, including both explicit and implicit costs
Accounting profit can be
economic loss
A firm’s cost of production includes all the
opportunity costs of making its output of goods and services
The opportunity cost of using a resource is
the value of the next-highest values alternative use of that resource
Define explicit costs
input costs that require direct outlay of money by the firm (resources that you use and pay for with money)
