Econ Ch 10 Flashcards
Competitive price searcher
a firm that
Has low barriers to entry
Faces a downward sloping demand curve (because they produce differentiated products)
Differentiated Products
products that are distinguished from similar products by characteristics like quality, design and method of production
marginal revenue will… and in order to sell a higher quantity
Marginal revenue will always be less than price for a price searcher
In order to sell a higher quantity, a price searcher will have to lower price
the graph looks like..because…
Because good substitutes are available, the demand curve faced by competitive price searchers is often highly elastic, but still downward sloping
A decrease in price will increase the quantity sold
Monopolistic competition
to maximize profits as a price searcher
A price searcher maximizes profits by reducing where MR=MC
If price > ATC, then the firm makes an economic profits
If price < ATC, then the firm is making an economic loss
when to stay open a while longer or shut down immediately if losing profits
P> AVC, stay open in short run
P< AVC, shut down nowwww
long run equilibrium for price searchers
When firms in a price searcher market make an economic profit (loss), new firms will enter (Exit) and drive price down (up)
In the long run, firms will make zero economic profit - use the profit the same as they would without the business, alternative is the same profit
Price graph will move up if losses or down if profits
ATC is tangent to p and mc intersects at min
why is price higher up for searchers than takers
Price in searcher is higher because they spend more money on things to advertise their product
look at graphs
:)
economics of business failure
Competition will drive failing firms out of business and free up the resources used by that firm for more productive use.
Profit = TR - TC
$20 = ($10 x 10) - ($8 x 10)
-$20 = ($6 x 10) - ($8 x 10)
get the most out of the resources
entreprenuer
is a person who introduces new products or improved technologies
The possibilities are endless
Where people are having problems, and trying to solve them
creative destruction
the replacement of old products and production methods by innovative new ones that consumers judge to be superior
This process generates economic growth and higher standards of living
Price Discrimination
A practice whereby a seller charges different consumers different prices for the same product or serves
Effective use of price discrimination requires 2 things:
Identify and separate at least two groups with different elasticities of demand
Prevent those who buy at the low price from wrestling to those who buy at the high price
Get inelastic people with high price and elastic people with low price
