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Micro Econ > P/Cost/Rev + Markets > Flashcards

P/Cost/Rev + Markets Flashcards

(47 cards)

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1
Q

What is the difference between the SR and LR

A

One or more factors of production are fixed in the short run but in the long run all factors of production are infinite and variable

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2
Q

Explain the law of diminishing marginal returns

A

In the short run when a factor of production is fixed and you add more of the variable factor productivity rises then falls

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3
Q

Describe the average and marginal revenue curves

A

Average revenue cannot be below 0
Marginal revenue can be below 0 and is twice as steep

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4
Q

Which one of the revenue curves is the same as demand

A

Average revenue

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5
Q

Describe the cost curves

A

AC is a bowl
MC starts high, decreases, then rises exponentially

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6
Q

Which of the cost curves is supply

A

Marginal cost

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7
Q

What are the assumptions of perfect competition market structure (5)

A
  • Perfect information
  • No barriers to entry
  • Firms are price takers
  • Infinite buyers and sellers
  • Homogenous/Identical goods
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8
Q

What changes graphically when a firm is in perfect competition

A

Demand is equal to AR and MR and they are perfectly elastic

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9
Q

Describe the types of profits and what is the symbol

A

Pi

Normal profit: TR = TC
Supernormal Profit: TR > TC
Subnormal Profit: TR < TC

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10
Q

For a firm (regardless of market) what is the determinant of profit

A

Where AC is

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11
Q

What are the business objectives and their conditions (7)

A

Profit maximisation: MC = MR
Sales maximisation: AR = AC
Revenue maximisation: MR = 0
Profit satisficing
Welfare maximisation: MC = AR (S = D)
Survival
Corporate social responsibility

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12
Q

What are some pros and cons of profit maximisation

A

Pros:
- Reinvestment
- Dividends
- Margin of safety

Cons:
- Less market share
- Brand image
- Less EoS

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13
Q

What are the pros and cons of revenue maximisation

A

Pros:
- Most EoS
- Greater market share
- Lower price harms competition

Cons:
- Less profit
- Principal-agent problem
- Less reinvestment or margin of safety

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14
Q

What are the pros and cons of sales maximisation

A

Pros:
- Lots of brand exposure
- Lower price hurts competitors
- EoS

Cons:
- Very low profit if any
- Low margin of safety
- Higher costs
- Principal-agent problem

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15
Q

What are the efficiencies that businesses strive to work at

A

Productive efficiency
Allocative efficiency
Dynamic efficiency
X efficiency

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16
Q

What is the condition for productive efficiency

A

Have to be working at the lowest point on the AC curve

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17
Q

What is the condition for allocative efficiency

A

When D = S so MC = AR

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18
Q

What is the condition for X efficiency

A

When working on the AC curve

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19
Q

What sort of firm usually works at X efficiency

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A

Smaller firms that cannot access economies of scale yet

20
Q

What is the condition for dynamic efficiency

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A

Anywhere where the firm is making a profit

21
Q

What is marginal product and average product

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A

Ways of representing output in relation to labour

22
Q

Describe the shape of the MP and AP curves

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A

Both are upside down quadratics and the peak of AP is where they intersect

23
Q

What happens in PC to the market and the firm when demand and supply shift

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A

In the short run there can be supernormal profits and losses

In the long run due to the conditions and barriers to entry they are corrected and there is normal profit

24
Q

Describe the shape of the AVC curve and explain the shutdown condition/why it is shutdown

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A

Upside down quadratic just lower than average cost

Shutdown condition is when AVC = AR as no fixed costs can be paid

25
What are the assumptions about a monopoly market (6)
- One seller dominates market - Imperfect information - Differentiated products - High barriers to entry and exit - Firm is price maker - Firms are profit maximising
26
What is a concentration ratio and how is it displayed
A ratio that describes the largest firms and their collective market shares in a market FirmNo:% (w/out)
27
What are the pros of a Monopoly
- supernormal profits (can be re-invested - EoS (lower prices and therefore prices possibly) - Cross subsidisation
28
What are the cons of Monopolies
- imperfect information (exploitation of higher price) - no allocative efficiency (welfare loss) - No productive efficiency - No competition
29
What is a natural monopoly and what does the graph look like
when one firm can supply the entire market at a lower cost than multiple competing firms - long run reciprocal curves with an inelastic demand
30
What are some of the features of a natural monopoly
- High fixed costs - High barriers to entry - EoS - Regulation
31
What are the pros of a natural monopoly
- economies of scale - avoids wasteful duplication - Can be regulated - dynamic efficiency
32
What are the cons of a natural monopoly
- lack of competition - low incentive to improve - higher prices
33
what does the usefulness of natural monopolies depend on
- Quality of regulation - How profits are used
34
What is an Oligopoly/what are the assumptions (5)
when a few large firms dominate the market - High barriers to entry/exit - Differentiated but similar goods - Imperfect information - Lots of non-price competition - INTERDEPENDANCE
35
What does the oligopoly graph look like and why is it shaped the way it is and what impact does that have on the market?
'kinked demand curve' and flat MR (only at a certain point) if they rise price they will see a large fall in Q as consumers will just move to competitors If the reduce price the other firms will follow so gains will be minimal
36
What impact does interdependence have on the oligopolistic market
firms are directly impacted by each others actions as they take up a large portion of the market meaning there is price rigidity (sticky prices)
37
What is there the temptation to do in an oligopoly due to the sticky prices and what theory supports its success
Collusion game theory as firms are likely to go for the DOMINANT STRATEGY (the lower price option within the range) but both firms would benefit at a higher price
38
What are the assumptions of monopolistic competition(7)
- Goods are similar but differentiated - Low barriers to entry and exit - Firms have some pricing power - Many buyers and sellers - Good information - Firms are profit maximisers - Non-price competition
39
What does the monopolistic competition graph look like in the short run and long run
In the short run there can be supernormal profits but this will cause other firms to join the market as there are low barriers to entry meaning individual firms demand will fall so in the LR there are only normal profits
40
What is a monopsony and what are the assumptions
A monopsony is when there is one dominant buyer in the market (NHS and doctors) - profit maximisers - high negotiation power - market pricing power
41
What are the benefits of monopsonies
High negotiation power means lower prices which could mean more reinvestment or lower prices for consumers.
42
What are the negatives of monpsonies
supplying firms will lose out on profits employees (monopsony employer) will suffer lower wages productivity may fall
43
What are the pricing strategies used by firms and what do they do
- Predatory pricing (low prices to drive firms out of market) - Limit pricing (low prices to limit new entrants) - 3rd Degree price discrimination (same good but different price for different demographic as elasticity is different)
44
what are the benefits of monopolistic competition
- consumers get more choice - non-price competition promotes innovation - low barriers promote competition
45
What are the cons of monopolistic competition
- limited dynamic efficiency in the long run so limited investment capital - less incentive to minimise costs (as products are differentiated) - short run profits may be wasted on advertising - Allocative and productive inefficiency
46
Describe the shape of the long run average cost curve and explain why it is the way that it is
it is a Quartic with repeated roots and is shaped as average cost decreases as quantity increases due to economies of scale but then DisEos occurs and cost rises
47
What are the types of price discrimination
1st - maximum they are willing to pay 2nd - different prices based on quantity (both Eos and rationing) 3rd - different prices based on demographic

Micro Econ (9 decks)

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