market structures Flashcards
(13 cards)
objectives of firms
profit max - MR=MC
sales max - AR=ATC
revenue max - MR=0
satisficing - between profit max and sales max
short run shut down price
P=Min AVC
(AR = AVC)
long run shut down price
minimum price at which a firm can cover both its variable and fixed costs
Diminishing Marginal Product
As a firm produces a higher quantity of goods or services, the firm will have to use less productive factors of production (because they have already used the best ones)
Diminishing marginal return
the more of something you add, the lower the impact of each additional unit, assuming all else is fixed
Returns to scale
how output changes in response to a proportionate increase in the amount of all inputs
how do L shapes LRAC curves happen
Economists that argue this believe that, in the long run, diseconomies of scale caused from managerial effects will be outweighed by other economies of scale, such as technical or managerial economies of scale and so LRAC will continuously fall
Actions if a company isn’t making normal profits in the short run
sell off assets
get out of contracts eg rent
regulatory capture
when a regulatory agency, originally created to act in the public interest, becomes influenced by the industries or interests it is meant to oversee
tacit collusion
No formal agreement or communication.
Companies just “read the market” and follow each other’s behavior to avoid competition
Hard to prove legally
Often happens in oligopolies
explicit/overt collusion
Direct communication and agreements between companies (illegal)
eg Airlines openly agree on how many seats to sell at certain prices
horizontal collusion
when competing companies at the same level in the supply chain collaborate instead of competing
vertical collusion
companies at different levels of the supply chain collude to gain an unfair advantage
Can restrict competition down the supply chain
