Module 9 and 10 Video / Other Flashcards
Market structure is
the competitive environment in which a firm operates
Monopoly
One firm in a monopoly. What kind of competition is there in monopoly? NO competition. This is a bookend to perfect competition because they’re exact opposites.
Barriers to entry.
No close substitutes.
In monopoly, marginal revenue and price are NOT the same. Marginal revenue actually falls faster than the price does. Essentially, when price is dropped, we get one more person who chooses to buy that product and therefore get additional revenue. However, there is some revenue lost because we had to drop the price. We did gain an additional sold product. Our marginal revenue curve in monopoly is twice as steep as our demand curve. It’ll actually go down across x axis in many examples. (You will never be asked to draw monopoly demand and marginal revenue curves - only in perfect competition would they ask you to draw it.)
What are the potential market structures?
Perfect competition, monopolistic competition, oligopoly, and monopoly.
Perfectly elastic demand is
horizontal. The definition is the firm can sell as many units as it can produce as long as it keeps the price consistent but if you try to change the price by one penny than you’ll lose all of your customers.
The TOTAL method vs the MARGINAL method
Total Method: Choose the quantity where the difference between the Total Revenue and Total Cost is the greatest
Marginal Method: Choose the quantity where the Marginal Revenue is equal to the Marginal cost
Marginal always means the….
change, additional, next, or extra of whatever word comes next
Firms in perfect competition
have a perfectly elastic demand curve that is completely horizontal. In these cases, price and marginal revenue are the same
Where marginal cost and marginal revenue intersect is
NOT the price when the firm has setting price power (monopoly). They can charge a cost greater than their marginal cost, SO THEY WILL.
In monopoly they are the price ________
MAKER, not taker
