lecture 6 - the firm and its customers

Question 1

what are some of the factors that affect the firms choice of price and quantities produced?

Answer 1

costs
price elasticity
market power

Question 2

what does surplus measure?

Answer 2

gains from trade

Question 3

what are the types of market structures?

Answer 3

• perfect competeition
  monopolistic competition
• oligopoly
• monopoly

Question 4

what is perfect completion?

Answer 4

• identical products
• firms are price takers
  (stock market traders)

Question 5

what is monopolistic competition?

Answer 5

• differentiated products
• local market power
  (restaurant brands in cardiff)

Question 6

what is oligopoly?

Answer 6

• small number of producers
• deciosn are inter related
• market dominated by 2 or more firms
  (smartphone
  manufacturers)

Question 7

what is a monopoly?

Answer 7

single producer with market dominance

de beer diamonds

Question 8

how is a large firm defined?

Answer 8

more than 250 employees

Question 9

does perfect competition truly exist?

Answer 9

rarely but it is an important theory as it puts boundaries on a range of behaviour in which you can see

e.g why perfect commotion is failing

Question 10

what does a firms cost of production depend on?

Answer 10

the scale of production

Question 11

what is economies of scale?

Answer 11

can achieve bugegr cost reunion the larger your company is, occurs when doubling all production inputs more than doubles the output, if you get more than double this is an economies of scale

Question 12

what does a firms successful depend on?

Answer 12

• cost
• how they attract custoemrs
• choice of product
• produce at lower cost and higher quality than competition

Question 13

in order to decide the price of a product what does a firm have to think about?

Answer 13

need to gain information regarding demand and how much potential customers are willing to pay for its product

Question 14

to achieve a high profit what would a firm want

Answer 14

for price and quantity to be high

Question 15

what are firms restricted by in terms of rpocigg products?

Answer 15

the demand curve

e.g if you choose a high price you will only be ale to sell a small quantity and lower price would be larger

Question 16

how would you pick your best strategy in terms of price and quantity?

Answer 16

you would pick the isoproft line that meets the feasible frontier (demand cure)

Question 17

what is the slope of the demand curve?

Answer 17

the MRT
rate in which the demand curve allows you to transform quantity in price
cannot rain price without lowering quantity

Question 18

why might a larger firm be more profitable than a small firm?

Answer 18

in terms of economies of scale

may be able to produce its outputs at a lower cost per unit

Question 19

why might large firms be able to produce outputs at a lower cost?

Answer 19

• cost advantages - bargaining power with suppliers

- technological advantages - large scale production users fewer inputs

Question 20

how are the technological advantages in large firms defined?

Answer 20

by economies of scale

Question 21

if outputs are less than proportional to the increase in inputs what is this called?

Answer 21

diseconomies of scale

Question 22

what is the demand curve?

Answer 22

the quantity in which customer will buy at each price (firms feasible choice set)

Question 23

what do isoprofit lines show?

Answer 23

price - quantity combinations that give the same amount of profit

Question 24

how doe firms maximise profits?

Answer 24

where MRS = MRT

Question 25

how do diseconomies of scale occur?

Answer 25

when a business grows so large that the cost per unit increase

Question 26

why might diseconomies of scale happen?

Answer 26

• poor communication, need different levels of hierarchy so more expensive
• lack of motivation, don’t feel appreciated
• lack of direction, forgot what the goal is

Question 27

as more units are produced what happens to average costs?

Answer 27

it increases

e.g through increasing number fo shifts a day