Chapter Two Flashcards
What are the 4 Ps of marketing?
Product, place, promotion and price
Conditions for the perfectly competitive firm?
- Average revenue = marginal revenue
- Marginal revenue = marginal cost
What are long-run attributes of an industry under perfect competition?
- Firms profit maximisie
- Each firm faces a horizontal demand curve
What is true about the behaviour of a profit-maximising monopoly?
It will only produce at the level of output where the price elasticity of demand is greater than one. It will produce where MC = MR. Since MC will always be positivel, this must be where R is above the horizontal axis and on the elastic portion of the demand curve.
Demand curve and elasticility relationship?
Demand curve has a falling elasticity as you move down the line
What is true about substitutes?
If two goods are substitutes, the cross price elasticity of demand is likely to be positive
What is expected with a good with elastic demand?
The total expenditure on a good with elastic demand can be expected to fall when the price rises
What is true about complements?
If two goods are complements, then a fall in price of one good will lead to an increase in the demand for the other good, as it becomes more attractive
What does the cross-elasticity of demand give?
The strength of the relationship between two goods
What is true about marginal cost and average cost?
Beyond the point where marginal cost equals average costs, the marginal cost must be greater than average cost and hence, average costs will be rising
Are constant long-term average costs a barrier to entry?
No
PED formula
(Q2-Q1)/Q1 / (P2-P1)/P1, then ignore the sign.
What do normal profits not provide compensation for?
Revenue minus expenditure as this gives accounting profits. Normal profit is an economic measure
Demand is the quantity of goods that consumers wish to buy
At each possible price
Where will a firm produce in the short run?
A firm must cover average variable costs in the short term. Average total cost must be covered in the long term but not necessarily in the short term
What is marginal cost?
It represents the increase in total cost as a result of producing one extra unit
A company still gaining the benefit of economies of scale as output levels rise is trading at an output level below?
Below minimum long run average total cost
Where does the mc curve cut average total cost curve?
The marginal cost curve always intersects the average total cost curve at its lowest point
When might short-run costs rise?
They may fall then rise due to increasing then decreasing returns to a factor
A company increases its output and average costs rise as a result. What is the best explanation of what is happening in the short run?
Average variable costs are increasing. A short-run increase in output will not have any impact on the scale of activities or on fixed costs
What analytical techniques are likely to be considered when analysing various industrial sectors and companies within those sectors?
SWOT, Porter’s Five Competitive Forces, and Four Ps of marketing
What is SWOT?
Strengths, weaknesses, opportunities, threats
What does the seven Ps add?
People, process and physical
In a perfectly competitive market in respact of demand curves faced by individual firms, what is the PED
Negative infinity
What is the minimum point on the long-run averagetotal cost
The minimum efficient scale
When consumer preference for a good increases, this will cause the equilibrium price to move
To the right along the supply curve
What is true about elasticity?
Supply becomes more elastic in the long term and elasticity of supply is positive
What are the five phases of the product life cycle
- Introduction
- Growth
- Maturity
- Decline
- Obsolescence
An economist has applied the kinked demand model to examine an industrym which is the most likely market structure being analysed?
Oligopoly. This is one of the price inter-dependence models of oligopoly which assumes that if one firm lowers prices, then others will follow
Which theory can’t be applied to analysing oligopolies?
Price discrimination theory which most frequently occurs in a monopoly where different customers are offered different prices
