Market Structure Flashcards
<p>How do economists determine types of markets?</p>
<p>based on the existence of substitutes</p>
<p>What are the types of markets?</p>
<p>Monopoly, oligopoly, monopolistic competition, perfect competition</p>
<p>What is oligopoly?</p>
<p>A handful of companies with close substitutes</p>
<p>What is monopolistic competition?</p>
<p>Non identical but similar products
| e.g. clothes</p>
<p>What is a firm?</p>
<p>An entity or orginisation that is responsible of G + S for maximisng profit. </p>
<p>What is an industry?</p>
<p>Many firms producing the same product, they might compete against each other.</p>
<p>What are the types of ownerships of firms?</p>
<p>1. Sole ownership
2. Partnership
3. Corporation</p>
<p>How do corporations measure capital?</p>
<p>Stocks</p>
<p>What types of partnerships are there?</p>
<p>Limited
| Unlimited</p>
<p>What is a limited partnership?</p>
<p>People cannot go after your own wealth</p>
<p>What is an unlimited partnership?</p>
<p>People can't go after your own wealth</p>
<p>What is the difference between limited and unlimited?</p>
<p>If you are unlimited it is easier to borrow from the bank</p>
<p>What is profit from stocks called?</p>
<p>Dividends</p>
<p>What are the two types of stocks?</p>
<p>Voting power and non voting power</p>
<p>Why do people buy stocks?</p>
<p>1. Profit</p>
<p>2. Equity</p>
<p>3. Value</p>
<p>What are firms?</p>
<p>legal units of production</p>
<p>What is a multinational company?</p>
<p>A company that produces in more than one country</p>
<p>What is an industry?</p>
<p>All the companies that produce a similar product </p>
<p>What decisions do firms have to make?</p>
<p>1. What industry to enter
2. Method of organisation (method of production).
3. Quantity and Price
</p>
<p>How does a firm decide what business to enter?</p>
<p>It is driven by knowledge, interests and profit.</p>
<p>What does quantity and price depend on?</p>
<p>the market structure under which the firm operates.</p>
<p>What is a firm's objective?</p>
<p>Maximising profit</p>
<p>How do you measure productivity?</p>
<p>The ration of input to output or the production per person</p>
What is short run?
A timeframe in which the quantity of at least one input is fixed. And the Q of the other inputs can be varied.
Are decisions in short run easily reversed?
Yes.
What is the long run?
A timeframe in which nothing is fixed. All inputs can be varied.
Are decisions in long run easily reversed?
no.
<p>What does the cost of production depend on?</p>
<p>1. Price of resources and relationship</p>
<p>2. Productivity</p>
<p>3. Time of production (short run or long run)</p>
<p>In short run what is easy to change?</p>
<p>Labour</p>
<p>In short run what is fixed?</p>
<p>Landsize, technology and capital</p>
<p></p>
<p>Why would you be an MNC?</p>
<p>Cheaper labour, less regulations in certain countries</p>
<p>What do you need to start a business?</p>
<p>1. Interest</p>
<p>2. Knowledge</p>
<p>3. Profit</p>
<p>What does the production function do?</p>
<p>Expresses output as a function of inputs required to make it</p>
<p>What is TP?</p>
<p>Total product produced</p>
<p>In short run how do you increase TP?</p>
<p>And decrease?</p>
<p>Increase labour</p>
<p>Decrease labour</p>
<p>What is MP?</p>
<p>Change in TP per each additional unit of labour</p>
<p>What is AP?</p>
<p>Average product. TP/Q of labourers</p>
<p>Why is the TP curve sloped in SR?</p>
<p>Law ofdiminishing return because you increase one input while other inputs remain the same. Also exhaustion of specialisation.</p>
<p>How does MP change as you increase labour?</p>
<p>MP initially goes up because you can do more with more labourers. Then it reaches a max because of exhaustion of specialisation, then it goes down again</p>
<p>So what does the MP graph look like?</p>
<p>A parabola</p>
<p>how do you calculate AP on a graph?</p>
<p>Slope of the line from origin to a point on TP</p>
<p>What happens when the marginal is bigger than the average?</p>
<p>Lets say the average number of apples per person was four apples, then someone brings ten apples, how does the average change? It goes up</p>
<p>Therefore when marginal is bigger than average, average increases</p>
<p>What happens when marginal is equal to average?</p>
<p>When the average nymver if apples per person is 4 and someone else brings in 4 apples, how does the average change? It stays the same</p>
<p>Therefore when marginal is equal to average, averagestays the same</p>
<p>What happens when marginal is less than average?</p>
<p>When the average number of apples per person is four apples, and someone brings three apples, what will happen to the average? It will go down.</p>
<p>Therefore when marginal is less than average, average decreases.</p>
<p>What is short run total cost?</p>
<p>Fixed cost + variable cost</p>
<p>What is fixed cost?</p>
<p>Cost that is not related to the output</p>
<p>What is an example of a fixed cost</p>
<p>A minimum cost</p>
<p>What is fixed cost also known as?</p>
<p>Sunk cost because it is not looked at when deciding whether or not to stay in business.</p>
<p>What do you look at instead when determining whether to stay in business or not?</p>
<p>Instead you look at variable cost.</p>
<p>What do you do if total revenue is greater than or equal to variable cost?</p>
<p>Stay in business</p>
<p>What do you do if total revenue is less than or equal to variable cost?</p>
<p>You either shut down or you leave</p>
<p>Can you leave the market in short run?</p>
<p>No</p>
<p>What does it mean to shut down?</p>
<p>You temporariliy stop producing</p>
<p>If you cannot maximise profit in the short run, what is your aim?</p>
<p>To minimise loss</p>
<p>What is the maximum amount you are allowed to lose in short run?</p>
<p>FC</p>
<p>in LR what is the max you are allowed to lose?</p>
<p>0</p>
<p>So what is the goal of LR?</p>
<p>Only to maximise profit§</p>
<p>What is the difference between the total cost curve and the variable cost curve?</p>
<p>They are parallel but total cost is exactly FC higher</p>
<p>How do you calculate marginal cost?</p>
<p>Change in total cost / change in quantity</p>
<p>∆FC / ∆Q +∆VC / ∆Q</p>
<p>∆FC is 0 as it is a fixed cost so there is no change</p>
<p>Therefore MC = ∆VC/∆Q</p>
<p></p>
<p>Why cant you lose more than fixed cost?</p>
<p>If you lose more than fixed cost you should shut down, because then you will lose just fixed cost.</p>
<p>What happens to AFC as quantity increases?</p>
<p>It decreases because the FC always stays the same but as Q increases you divide it by more and more.</p>
<p>Imagine you have 100 apples and more people come and want some apples. It reaches an asymptote</p>
<p>Why do ATC and AVC come closer together?</p>
<p>The difference between them is AFCwhich is decreasing as Q increases</p>
<p>Why is AVC U shaped?</p>
<p>The Law of diminishing return</p>
<p>Explain the law of diminishing return</p>
<p>1. Specialisation means productivity increases so marginal productivity increases which leads to marginal cost decreasing.</p>
<p>2. Exhaustion of specialisation leads to productivity going down. MP goes down and marginal cost goes up.</p>
<p>When marginal goes up, average goes up. So this leads to ATC going up.</p>
<p>Is there a fixed cost in the long run?</p>
<p>No</p>
<p>What does it mean if at 0 output there is a number for total cost?</p>
<p>You are in the short run and this is fixed cost.</p>
<p>How do you calculate average cost?</p>
<p>TC/Q</p>
<p>So FC/Q + VC/Q</p>
<p>What happens at the minimum AVC?</p>
<p>AVC = MC</p>
<p>So ATC = AFC + MC (Because AVC and MC are equal)</p>
<p>ATC > MC because ATC is AFC bigger than MC</p>
<p>Since the average is highger than the marginal, the average is decreasing.</p>
<p>If you can decide what is the most efficient way of production, are you in short run or long run?</p>
<p>Long run because you can choose</p>
<p>When you hire machines and labour are you in short run or long run?</p>
<p>A short run within a long run, because the machines and labourers are now your fixed variables</p>
<p>What are long runs made up of?</p>
<p>Many short runs</p>
<p>Which short run do you choose in the long run?</p>
<p>The one that minimises my cost in order to maximise my profit</p>
<p>What is the long run average cost curve made up of?</p>
<p>The minimum point of many short run average cost curves.</p>
<p>Why the minimum point? Because you are trying to decrease the costs so you will compare the cheapest of each one</p>
<p>So you could say LRAC is an....</p>
<p>envelope that contains many SRAC curves and touches them all once at the minimum point</p>
<p>Why is the short run average cost curve u shaped?</p>
<p>Specialisation and exhaustion of specialisation</p>
<p>why is the LRAC curve u shaped?</p>
<p>Return to scale</p>
<p>What is return to scale?</p>
<p>What happens to output when you increase all of the inputs by the same percentage</p>
<p>When you increase all inputs by 100 percent and output increases by more than 100 percent, what happens to average cost?</p>
<p>Average cost decreases</p>
<p>When you increase all inputs by 100 percent and output increases by100 percent, what happens to average cost?</p>
<p>Average cost remains constant</p>
<p>When you increase all inputs by 100 percent and output increases by less than 100 percent, what happens to average cost?</p>
<p>Average cost increases</p>
<p>If output increases faster than input what is this called?</p>
<p>Economies of scale or increasing return to scale</p>
<p>If output increases as fast asinput what is this called?</p>
<p>Constant return to scale</p>
<p>If output increases slower than input what is this called?</p>
<p>Diseconomies of scale or decreasing return to scale</p>
<p>Where do you want to be on the LRAC curve?</p>
<p>At the end of IRS and beginning of CRS. This is Minimum efficient scale</p>
<p>What is minimum efficient scale?</p>
<p>Normal profit</p>
<p>Why do we have increasing return to scale?</p>
<p>1. Technical economies</p>
<p>2. Managerial economies</p>
<p>3. Purchasing economies</p>
<p>4. Marketing economies</p>
<p>5. Financial economies</p>
<p>What are technical economies?</p>
<p>some factors of production are indivisible, so that to make full use of them a largescale output or a large firm is required. E.g. it is difficult for a worker in a small firm to be part mechanic, part supervisor, part electrician and still be as efficient as an employee who specialize in one task in a big firm. In a large firm workers increase their productivity through experience, learning by doing and save time from moving from one task to another. Economies of scale can occur b/c specialization allows for greater productivity.</p>
<p>What is managerial economies?</p>
<p>Same as technical economies but with managers. Bigger firms can employ more specialist higher up staff.</p>
<p>What is purchasing economies?</p>
<p>Bigger firms can buy in bulk which makes things a lot cheaper</p>
<p>What is marketing economies?</p>
<p>Advertisement becomes cheaper the more sold. It is a fixed cost so it doesnt matter how much is sold but if you sell more its less expensive.</p>
<p>What are financial economies?</p>
<p>Larger firms with larger resources usually find it easier to borrow money from banks as they present a lower risk</p>
<p></p>
<p>What is Q*?</p>
<p>Profit maximising output</p>
<p>How do you calculate Q*?</p>
<p>1. Find the biggest possible gap between TR and TC</p>
<p>2. Marginal analysis where MR = MC</p>
