UNit 4 Flashcards
(24 cards)
Price Takers
Firms that have no influence on the price of the product they produce
Industry
A group of firms that produce identical or similar products
Pure Competition and its conditions
large number of well informed independent buyers and sellers who exchange identical products
conditions: large number of B+S with relatively equal influence
identical products dealt with (ex. salt)
B+S are free to enter/leave the business
B+S are reasonably well informed about products and prices
B+S act independently
Using a graph how do you tell if there is
a. normal profit
b. economic profit
c. loss
a. ATC just touches MR (is above otherwise)
b. ATC is below MR
c. ATC is entirely above/not touching at all MR
How do you calculate profit? (using graphs also)
- find where MR and MC meet
- multiply MR by the output where MR and MC meet, this gives you TR
- find TC -> ATC times output
- find profit -> TR - TC
Normal profit
an amount equal to what owners of a business could have earned if their resources had been employed elsewhere - you make enough money but not excess
profit = 0
Economic profit
the amount by which the total revenue exceeds the total cost - you have excess money
profit>0
Loss
the excess of total cost over total revenue - you’re losing money
profit<0
When firms are losing money/at a loss what are there two options
shutting down or continuing and operating at a loss
if continuing is less expensive then a firm will continue to produce, once it no longer costs less to continue you shut down
long-run equilibrium
situation in which the size of an industry is stable: there is no incentive for additional firms to enter the industry and no pressure for firms to leave
allocative efficiency
producers use societies scarce resources to provide consumers with the proper quantities of goods and services that they desire most
a. marginal social benefit
b. marginal social cost
c. relationship with each other + output
a. the benefit that the consumption of another unit of output conveys to society (like demand curve)
b. the cost that the production of another unit of output imposes on society
c. if msb exceeds msc output should be expanded, if msc exceeds msb output should be stopped and resources used elsewhere
market power
pricing discretion; the ability of a firm to influence the market price of its product
product differentiation
distinguishing a product from similar products offered by other sellers in the industry through advertising, packaging, or physical product differences
monopoly
an industry structure characterized by a single firm selling a product for which there are no close substitutes (total market power)
Two ways firms influence price
- product differentiation: different product from competition = they can charge higher prices
- gaining control over supply: if a firm has enough control over the market they can influence price
price searcher
a firm that possesses pricing discretion -> influences price but not quantity demanded
pricing discrimination
when firms charge different consumers different prices for the same product
price searchers and price takers will operate when ___
MR and MC meet (MR = MC)
MR line is diagonal and MC is curvy
can price searchers have long run economic profit
they can but they don’t have to
Do price searchers operate at allocative efficiency?
no, but they do produce at MR = MC
economies of scale
which side of graph?
reductions in average cost of production cause by large plant size and scale of output
more you produce less it costs per unit
left side of graph
diseconomies of scale
which side of graph?
increase in average cost of production caused by larger plant size and scale of output
more you produce more it costs per unit
right side of graph
cartel
group of producers working together to control output(supply) and price
