Micro Part 1

Question 1

Profit maximisation under perfect completion:

Answer 1

MC= MR= p

Question 2

Profit maximization under monopoly :

Answer 2

MC=MR< p

Question 3

Cournot compétition

Answer 3

Describes an industry structure in which competition firms that make the same homogeneous and undifferentiated product choose a quantity simultaneously as independently

Question 4

Point of Cournot :

Answer 4

Gives the profit maximization price- quantity combination of a monopoly

Question 5

Dead weight loss:

Answer 5

Cost to society created by market inefficiency

Question 6

Income elasticity :

Answer 6

E i/d= variationQ/ variation Y

E= négatif —> inferior goods : an increase in income —> a decrease in d or even substitute for luxury goods

E=positif —> normal goods: an increase in income will lease to a rise in demande
E<1: necessary goods
E> 1: luxury goods

Question 7

Monopoly and elasticity :

Answer 7

Monopoly price should always be in the are of elastic reaction to prices,

Because MR in negative in the inelastic part of D

Question 8

Can a harvest be a good thing for peasant ?

Answer 8

It depends on elasticity :

Inélastic reaction : increase in their revenue

Question 9

Constant cost industries :

Answer 9

Increase in the demande —> increase —> in profits: more companies will enter the market and prices will get back to there original costs.

In the long run: increase in the quantity the price will remain the same

Question 10

Increasing cost industries:

Answer 10

If the demande increases —> price increase—> more firms will enter the industry but costs will increase

In the long run : quantity increases and price increases

Question 11

Decreasing cost industries

Answer 11

Increase in demande —> increase in price —> more firms but decrease in costs

Long run: increase of quantités and decrease of price

Question 12

Decreasing cost industries : (adv )

Answer 12

For bigger suppliers (Dunkin donut) entering the market later is likely to have lower costs than small first movers (George)

Question 13

Easy to enter markets

Answer 13

Prices above the equilibrium attract competitors until prices are down to the competitive équilibrons (MR=MC=p)

Question 14

Consumer surplus :

Answer 14

The difference btw what consumers are willing to pay for a good relative to its market price

Question 15

Producer surplus :

Answer 15

When consumers willing to pay more for a given product

Question 16

Double marginalization :

Answer 16

Double Marginalization is the phenomenon in which different firms in the same industry that have their respective market powers but at different vertical levels in the supply chain (example, upstream and downstream) apply their own markups in prices.

Due to these markups individually a deadweight loss is induced and because of both the markups the deadweight loss occurs twice thus making it worse off for the whole market due to double marginalization.

One way of avoiding the losses due to double marginalization is by integrating the two firms vertically and thus reducing at least one of the dead weight losses.