Micro Econ Flashcards
what is known about fixed costs in the short run
in the short run at least one factor of production cannot be changed e.g. rent, adverts, capital goods
internal economies of scale
- managerial
- technological
- risk-bearing
- financial
- marketing
- purchasing
allocative efficiency
resources used to produce goods where the value to consumers through consumption is equal to marginal cost
maximised social welfare
MC = AR
productive efficiency
when products are produced at the lowest average cost
MC = AC
what are the characteristics of perfect competition
- goods are homogenous
- firms are price takers
- many buyers and sellers
- low barriers to entry/exit
- perfect information and knowledge
what are the characteristics of monopolistic competition
- goods are heterogeneous
- firms are price setters
- many buyers and sellers
- low barriers to entry/exit
- perfect information and knowledge
what is the diagram for perfect competition
in the long run they make normal profits
show an increase in revenue in a perfectly competitive market
increased in AR increases demand creating a new market equilibrium
what are the efficiencies of perfect competition
- allocative efficiency
- productive efficiency
- no dynamic efficiency
- no x-inefficiency
what is the diagram for monopolistic competition in the short run
what is the diagram for monopolistic competition in the long run
what are the efficiencies of monopolistic competition
in the long run - none
- not allocative efficiency
- not productive efficiency
- no dynamic efficiency
- no x-inefficiency
what five-firm concentration ratio is considered an oligopoly
greater than 50%
what are the key features of an oligopoly
- interdependence
- heterogeneous goods
- barriers to entry
what is a natural monopoly
when the most efficient number of firms is one possibly due to high fixed costs e.g. tap water
what are the efficiencies of a monopoly
- allocative inefficient
- productive inefficient
- dynamic efficient
- x-inefficient
what is the diagram for a natural monopoly
what is the diagram for negative production externalities
what is the diagram for positive consumption externalities
what is an example of tacit collusion
pharmaceutical companies
petrol stations - BP and Shell
supply and demand diagram of the incidence of tax on consumers and producers
supply and demand diagram of the incidence of subsidy on consumers and producers
what is the % change formula
((new - old) / old ) * 100
what are the two reasons for natural monopolies and what are two examples
- high sunk costs
- huge economies of scale
- e.g. NHS and TFL
what is the 3rd degree price discrimination diagram
what are the 3 requirements for 3rd degree price discrimination
- able to set prices/some market power
- able to differentiate consumers
- able to prevent arbitrage/reselling
what are the two main reasons firms engage in collusive behaviour
- to reduce uncertainty
- to increase profit
key words when talking about collusion
- interdependence
- overt and tacit
- game theory
what % market share is considered a legal monopoly
25%
what are the benefits of nationalisation
employees - trade unions more powerful
- greater job security
consumers - acts to improve social welfare
- allocatively efficient
what is consumer inertia
the tendency of some consumers to continue buying the same product even when better options exist
rationalisation
e.g. removing two heads of departments
why do firms remain small
- lack of skills/finance/resources
- avoid diseconomies of scale
- profit satificing
what is a benefit of a NMW on firms
increased incentive -> increased productivity -> fall in unit cost
what are the 3 ways firms compete on price
- price wars
- predatory pricing
- limit pricing
what are the 3 ways firms compete on price
- price wars - baked beans in 1990s
- predatory pricing
- limit pricing - incumbent firm
what are 3 ways firms firms compete over non-price
- Advertising - samsung and apple
- Loyalty cards -
- Branding - nike and adidas
- Quality
