econ final Flashcards
Economies of scale
Average cost per unit of production decreases as the scale of production grows
Diseconomies of scale
increasing production may lead to larger cost per unit of production
Constant returns to scale
increasing scale of inputs results in a proportional increase in output
diminish returns
adding more input such as labour to a fixed input leads to smaller and smaller increases in output
How to profit maximize in a competitive market
MR=P
Competitive markets
price takers
Many buyers and sellers
goods and services being sold are similar
businesses can easily enter and exit market in the long run
Demand curve in a perfectly competitive market
perfectly elastic and horizontal
MR>MC
Raise profits
Profit maximized
MC=MR=P
Where price intercepts MC curve
Cost curves
ATC u shaped
Marginal cost intersects with ATC at minimum average total cost
marginal cost will eventually increase as output increases
Short run shutdown if competition
total revenue < variable cost
P<AVC
Long run exit competition
total revenue<total cost
enter if oposite
P<ATC
Competitive market enter
total revenue>total cost
P>ATC
Do not enter and exit competitive market if
P=ATC
Monopoly
they are price makers to increase quantity sold they must lower prices
Monopolist increases production two factors affect revenue
1.Quantity affect one more unit sold total revenue will increase because since larger quantity is sold
2.price effect- to sell one more unit price must fall which will lower total revenue
Monopolist profit maximized
MR=MC
P>MC=MR
do not have a supply curve
P=average revenue
Socially efficient quantity monopoly
Where MC intersects demand curve at any quantity below this the value to buyers exceeds the marginal cost of producing so increasing output increases total surplus. Monopolies usually produce less than sociall optimal
oligopoly
few sellers and few suppliers
monopolist competition
Businesses supply products that are different in some way
three traits-many sellers entry and exit, product differentiation, each product is slightly different. Individuals have to believe its different but it does not have to be different
How does a competitive monopoly differ from a competitive market and monopoly market
Competitive markets are price takers while comp monopoly is price maker
Monopoly does not have free entry and exit while a competitive monopoly has free entry and exit
Profit maximization in a competitive monopoly
Find quantity where MR=MC
Use demand curve where highest price can be used at MC=MR
P>ATC making positive economic profit
P<ATC making negative economic profit
P=ATC making zero economic profit
Two results from long run equilibrium in a competitive monopoly
-price greater than marginal cost (monopoly)
-price equals ATC like a competitive market
monopoly in the short run competitive in the long run
Game theory
study if strategic decision making
