Chapter 8 (Managing Markets) Flashcards
Economics of scale
Exist whenever long-run average costs decline as output increases
Diseconomies of scale
Exist whenever long-run average costs increase as output increases
Economies of scope
Exist when the total cost of producing two products within the same firm is lower than when the products are produced by separate firms.
Cost complementarities
Exist when the marginal cost of producing one output is reduced when the output of another product is increased
Monopoly output rule
A profit-maximizing monopolist should produce the output Q^m such that marginal revenue equals marginal cost
Monopoly pricing rule
Given the level of output Q^m that maximizes profits the monopoly price is the price on the demand curve corresponding to the Q^m units produced
Monopolistic competition
A market in which (1) there are many buyers and sellers; (2) each firm produces a differentiated product; and (3) there is free entry and exit
Deadweight loss of monopoly
The consumer and producer surplus that is lost due to the monopolist charging a price in excess of marginal cost
Profit maximization rule for monopolistic competition
To maximize profits, a monopolistically competitive firm produces where its marginal revenue equals marginal cost. The profit-maximizing price is the maximum price per unit that consumers are willing to pay for the profit-maximizing level of output.
Long run and monopolistic competition
In the long run, monopolistically competitive firms produce a level of output such that 1) P > MC, 2) P = ATC > minimum average costs
Comparative advertising
A form of advertising where a firm attempts to increase the demand for its brand by differentiating its product from competing brands.
Brand equity
The additional value added to a product because of its brand
Nice marketing
A marketing strategy where goods and services are tailored to meet the needs of a particular segment of the market
Green marketing
A form of niche marketing where firms target products toward consumers who are concerned about environmental issues
Brand myopic
A manager or company that rests on a brand’s past laurels instead of focusing on emerging industry trends or changes in consumer preferences
How does a monopoly maximize revenue
Monopolies maximize revenue when MR = 0
How do perfectly competitive firms maximize profit?
When price equals marginal cost
Where is the short run supply curve for a perfectly competitive firm?
Where MC is greater than ATC
What is the monopoly level of output?
MR = MC
Where is the short run supply curve for a monopoly?
There is no supply curve for a monopolist
What does the supply curve determine?
How much will be produced at a given price
Perfectly competitive firms determine how much output to produce based on
P = MC
What is the monopolistic competition level of output?
MR = MC
What is the profit-maximizing level of output for monopolistic competition?
The price per unit that consumers are willing to pay for the profit-maximizing level of output.
The optimal advertising to sales ratio
Eqa / -Eqp where Eqa is the advertising elasticity and Eqp is the own price elasticity
