the firm and it's customers Flashcards

1
Q

demand curve d

A

The demand curve gives the quantity consumers will buy at each possible price

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2
Q

where is the feasible set in relation to the demand curve

A

to the left of the demand curve / under it

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3
Q

where is the profit maximising point in relation to the demand curve

A

the isoprofit line that is a tangent to the demand curve (isoprofit lines are L shaped but smooth curves)

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4
Q

what is the slope of the isoprofit curve

A

mrs - represents trade off willing to make between p and q

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5
Q

what is the slope of the demand curve

A

mrt - trade off that you are constrained to make (transform q into p)

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6
Q

economies of scale d

A

economies of scale occur when increasing output leads to lower long run average total costs

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7
Q

increasing returns d

A

when an increase in input results in a more than proportionate increase in output

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8
Q

decreasing returns d

A

when an increase in input leads to a less than proportionate increase in output

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9
Q

example of economies of scale

A

fixed costs (r&d fall as output increase),
purchasing (bulk buy),
financing (credit),

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10
Q

marginal cost equation

A

∆C/∆Q

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11
Q

what is the difference between the price and marginal cost called

A

profit margin

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12
Q

slope of isoprofit curve equation

A
  • (P-MC)/Q,

- profit margin/quantity

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13
Q

how do you calculate mr

A

gain in revenue (21st car $6320, 6320)
loss of revenue ($80 on each of 20 cars, -1600)
marginal revenue=$4720,

or

q=20 p=6400 128000
q=21 p=6320 132720
mr=4720

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14
Q

what is the profit maximising output (think back to a level)

A

mr=mc

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15
Q

why is the profit maximising output mr=mc

A

profit = total revenue - total cost,

marginal profit = mr - mc

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16
Q

where is the producer and consumer surplus

A

consumer above and producer below

17
Q

consumer surplus d

A

The consumer’s willingness to pay for a good minus the price at which the consumer bought the good, summed across all units sold

18
Q

producer surplus d

A

The price at which a firm sells a good minus the minimum price at which it would have been willing to sell the good, summed across all units sold

19
Q

where is the deadweight loss

A

triangle between where curves cross and the actual p and q and then draw down

20
Q

deadweight loss d

A

loss of total surplus relative to a pareto efficient allocation

21
Q

ped d

A

The percentage change in demand that would occur in response to a 1% increase in price

22
Q

when elasticity is higher than 1 what is mr

23
Q

when elasticity is below 1 what is mr

24
Q

firm will always choose a point where the elasticity is _____ than one

A

greater,

because below 1, mr<0 so would be better to decrease the quantity to raise revenue and decrease costs

25
profit margin d
The difference between the price and the marginal cost
26
where is the pareto efficient outcome on the demand curve and marginal cost diagram
where the demand curve meets the marginal cost curve and neither the consumer nor producer surplus can be increased
27
the lower the elasticity of demand the ____ a firm will ____ price _____ the marginal cost to a achieve a high profit margin
more, raise, above
28
monopoly d
firm that is the single seller of a product without close substitutes
29
example of monopoly regulation
ibm
30
the lower the elasticity of demand, the _____ the profit margin and the deadweight loss
higher
31
cartel d
A group of firms that collude in order to increase their joint profits
32
competition policy d
Government policy and laws to limit monopoly power and prevent cartels
33
why is competition policy not always a good solution
domestic utilities such as water have high costs associated with providing the supply network
34
natural monopoly d
industry which requires substantial fixed costs such that LRATC curve is sufficiently downward sloping to make it impossible to sustain competition among firms in the market
35
what is an alternative to natural monopolies
public ownership