Micro Flashcards
Monopoly Profit maximization
π = p(q) * q-C(q)
(Revenue menos costs)
Donde
q= firm lvl demand curve
p(q) = price depends on amount of supplies.
Perfectly competitive markets: Perfect competitive markets
Marginal revenue, marginal.cost
Marginal revenue
π’ = p’ (q)*q+p(q)
Marginal cost
C’q
Demand elasticity
ε^d = △q(p)/△p * p/q
Price elasticity of demand
Formula=
ε_d=δQ/δP × P* /Q*
La derivada de P respecto de Q, y luego
ε =1 unitary elastic
ε> 1 elastic
ε< 1 inelastic
Competitive model facts
Fact #1 in competitive markets w/ identical firms long run market supply is horizontal
Fact #2 income competitive market firm level.demand is horizontal
Market power
Market power is ε/(1+ε)
¿Por qué?
Porque MR = p(q) (1 + 1/ε) = MC
Y rearranging…
p(q)/MC = 1/ (1+ 1/ε) = ε/(1+ε)
Lerner index
P(q)-MC/ p(q) = -1/ε
Es una medida economica que evalúa el grado de poder de mercado de una empresa a través de la elasticidad de cuánto venden y a qué precio.
Recap #1 is it better quotas or tariffs? What is the relation between MR and MC in C.Mkt
1.When govs set quotas instead of tariffs society loses tax revenue.
2. In competitive markets, Every profit max. Firm sets output where Marginal Revenue= Marginal Cost.
A monopolist would neve set Q where …
Demand is inelastic
Market Power Guarantees
…
Price > cost
In competitive markets price=cost
A natural monopoly depends on…
- Cost function
- barriers to entry
- patents. Pp.ii.
Network externality is…
The demand depends on the consumption of the good by others. Benefit of the network size(FB), peer effects.
Nash equilibrium is ….
A situation in which no actor can improve his utility by changing his actions unless at least one other actor changes his/her action too.
In cournot model
Firms choose quantities simultaneously, thus, the second actor has to lower the price each time.
Stackelberg is…
A variation of cournot model, in which there are “LEADERS” and “FOLLOWERS”. We calculate the best response function for the follower. LEADER will profit more because by moving first he can CREDIBLY COMMIT to his output choice. In cournot we optimize first. In Stackelberg, we optimize after
Cuánto produce el monopolista?Formula de MR?
Monopolist produces:
MC=MR
δR/δq = derivamos la q en la formula de revenue.
“Mark up” es aquello que el monopolista va a cobrar de sobreprecio.
Bertrand model
The firm chooses the price and market sets quantity.
You cannot get lower than your Marginal Cost.
Producer Surplus
PS = R-VC
Revenue - variable costs = producer surplus.
the triangular area formed above the supply line over to the market price.
Welfare
W= CS + PS
Consumer surplus
It is the AREA UNDER THE DEMAND CURVE AND ABOVE THE MARKET PRICE UP TO THE QUANTITY.
Difference between
“what consumer is willing to pay “
vs.
“What the quantity of the good actually costs”
Dead weight loss (DWL)
A net reduction in welfare from loses of surplus. Often happens because of actions that move the market away from the competitive equilibrium.
REVENUE FORMULA
Revenue= P*Q
Recuerdan que nos dan la.formula de precio y normalmente incluye a Q todo eso lo multiplicas por Q. Es normal que te de cuadrado.
Luego de eso derivas a Q respecto de R y te da el valor Q, el cual luego incluimos en la formula de precio para sacar P.
Como.sacar MC
δC / δQ
La derivada de Q respecto se C en la funcion de costos. Hay que derivar Q!
Tips de ejercicios de Best Response.
Q = q_a + q_b… + q_n
π = (q_n * p) - C_n
Coase theorem
If we assign property rights no matter who, the outcome will be efficient because of negotiation. But stil, the outcome will be efficient to society. This assimes that there are no transaction costs.
