Neoclassical Theory of the Firm Flashcards Preview

ECON2010 Industrial Economics > Neoclassical Theory of the Firm > Flashcards

Flashcards in Neoclassical Theory of the Firm Deck (14)
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1
Q

What is industrial economics?

A

The field of economics that studies firms, markets, and the well-being of consumers. It is the study of imperfect competition and provides the basis for regulation and competition policy

2
Q

What does the structure of s firm include?

A
  • number and size distribution of buyers and sellers
  • entry and exit conditions
  • product differentiation
  • vertical integration
  • diversification
3
Q

What does the conduct of a firm include?

A
  • business objectives
  • pricing policies
  • product design, branding and advertising
  • R&D
  • collusion
  • mergers
4
Q

Criticisms or SCP paradigm

A
  1. Empirical findings can be interpreted in different ways
  2. Strategic interaction has an important role
  3. Structure if market is endogenous
  4. There are measurement issues
5
Q

Collusion hypothesis

A

The idea that the greater the market share, the greater the monopoly power, the greater the profit. This is the theory of SCP researchers

6
Q

Effeciency hypothesis

A

Some firms have superior technology and talent and thus have larger size and profit. This implies that punishing the largest firms is punishing success

7
Q

What is true when AC=MC?

A

They cross at the bottom of the AC curve so AC is minimised

8
Q

If AC declines with q what is true?

A

There are scale economies or IRTS

9
Q

What is a measure of scale economies?

A

S=AC/MC

10
Q

Minimum efficient scale of operations

A

Lowest output level at which economies of scale are exhausted S=1

11
Q

When do we get a natural monopoly

A
When fixed costs are very high
Network externalities
Governement regulation over entry
Sunk costs
Economies of scope
12
Q

What are network externalities?

A

Consumers value products more if there are a larger number of users, this tends to induce higher concentration e.g PS4

13
Q

What are economies of scope?

A

Multi product firms use the same resources for many goods, average costs may fall through diversification

14
Q

Criticisms of neoclassical theory of the firm

A
  • assumes firms operate in owners’ interest
  • why do firms exist?
  • corporate governance