lecture 6 - the firm and its customers Flashcards
what are some of the factors that affect the firms choice of price and quantities produced?
costs
price elasticity
market power
what does surplus measure?
gains from trade
what are the types of market structures?
- perfect competeition
monopolistic competition - oligopoly
- monopoly
what is perfect completion?
- identical products
- firms are price takers
(stock market traders)
what is monopolistic competition?
- differentiated products
- local market power
(restaurant brands in cardiff)
what is oligopoly?
- small number of producers
- deciosn are inter related
- market dominated by 2 or more firms
(smartphone
manufacturers)
what is a monopoly?
single producer with market dominance
de beer diamonds
how is a large firm defined?
more than 250 employees
does perfect competition truly exist?
rarely but it is an important theory as it puts boundaries on a range of behaviour in which you can see
e.g why perfect commotion is failing
what does a firms cost of production depend on?
the scale of production
what is economies of scale?
can achieve bugegr cost reunion the larger your company is, occurs when doubling all production inputs more than doubles the output, if you get more than double this is an economies of scale
what does a firms successful depend on?
- cost
- how they attract custoemrs
- choice of product
- produce at lower cost and higher quality than competition
in order to decide the price of a product what does a firm have to think about?
need to gain information regarding demand and how much potential customers are willing to pay for its product
to achieve a high profit what would a firm want
for price and quantity to be high
what are firms restricted by in terms of rpocigg products?
the demand curve
e.g if you choose a high price you will only be ale to sell a small quantity and lower price would be larger
how would you pick your best strategy in terms of price and quantity?
you would pick the isoproft line that meets the feasible frontier (demand cure)
what is the slope of the demand curve?
the MRT
rate in which the demand curve allows you to transform quantity in price
cannot rain price without lowering quantity
why might a larger firm be more profitable than a small firm?
in terms of economies of scale
may be able to produce its outputs at a lower cost per unit
why might large firms be able to produce outputs at a lower cost?
- cost advantages - bargaining power with suppliers
- technological advantages - large scale production users fewer inputs
how are the technological advantages in large firms defined?
by economies of scale
if outputs are less than proportional to the increase in inputs what is this called?
diseconomies of scale
what is the demand curve?
the quantity in which customer will buy at each price (firms feasible choice set)
what do isoprofit lines show?
price - quantity combinations that give the same amount of profit
how doe firms maximise profits?
where MRS = MRT
how do diseconomies of scale occur?
when a business grows so large that the cost per unit increase
why might diseconomies of scale happen?
- poor communication, need different levels of hierarchy so more expensive
- lack of motivation, don’t feel appreciated
- lack of direction, forgot what the goal is
as more units are produced what happens to average costs?
it increases
e.g through increasing number fo shifts a day
