Micro Questions Flashcards
Why may a manager of the firm choose to profit satisfice
Once a firm has made enough profit, may choose to persue:
Social objectives - e.g helping local community
Personal objectives - e.g spending more time with family
Profit satisficing
A company makes just enough profit to pay its workers and for shareholders to be satisfied with their returns
What point achieves revenue maximisation
MR = 0
Profit maximisation point
MC=MR
Sales maximisation (normal profit)
AC = AR
Regulatory capture
When regulators begin to favour the company they’re regulating
When a firm is profit maximising, is it productive efficient?
No because not producing on lowest point on AC curve
Short run shut down point
P (AR)=AVC
When will a firm shut down (SR)
If AR < AVC
AVC
Variable costs change with output
AVC = TVC/Q
AR is also what
Price
Perfect competition
Many buyers and sellers
Homogenous goods
perfect information
no barriers to entry exit
Productive efficient
Firm is producing at lowest point on AC curve
Division of labour
Firm splits up production processes into smaller separate tasks, assigns different workers to each of these tasksp
Advantages of division of labour
Increase productive and output by specialising and using specialist equipment
Decrease unit costs bc workers more efficient
Disadvantage of specialisation of labour
Specialised workers will have 1 skill
May end up unemployed
Why will a firm continue producing if it can cover its variable costs, even if it is making a loss
In the long run it will pay off its fixed costs and make a profit
Public good
Non excludable (can't stop others from using a public good) Non rival (use good at the same time as someone else)
Contestablity
How easy it is to enter a market
Predatory pricing
Setting price below AVC to drive out competitors from market
Horizontal integration
Firms at the same stage of production process join together
CMA
Competition and markets authority protects consumers from being exploited by firms using regulation and competition policy
Merger policy
CMA can block mergers if they Believe the merger will negatively affect consumers
Consequence of horizontal merger
Exploit greater market share
Higher market power
When does diseconomies of scale start?
Beyond MES (maximum efficiency scale)
Carbon tax
A tax in firms for every tonne of carbon they emit
Carbon tax RLA
In Australia firms have to pay £5 levy on every tonne of greenhouse gas they emit
FOR carbon tax
Directly raise revenue for Gov
Tax forces firms to innovate
Increase the cost of polluting
Firms need to find cheaper less polluting methods
FOR pollution permits
Firms can pollute as much as they want with a carbon tax
Permits cap pollution to government target
Permits reduce pollution in
The most cost-effective way
Limits job losses unlike tax
