Unit 7 & 8 Flashcards
homogeneous goods?
- completely identical
- firms are price takers
differentiated goods?
- firms are price setters
- consumer values characteristics
profit calc?
total revenue less total costs
((price x cost) x quantity)
law of demand?
demand curves have negative slopes
higher price = lower quantity
reason for law of demand?
- willingness to pay decreases as quantity acquired increases
- rather buy from cheaper competitor
- price increase result in it being too expensive
- some products will not be bought when price increase
reasons for line shift?
- change in preference
- change in income
- change in competitor’s prices/ products
- access to new markets
reason for move along curve?
price increase/ decrease
average cost calc?
= (total cost x quantity) / quantity
marginal cost?
change in total cost / change in quantity
marginal cost < average cost?
AC is decreasing
marginal cost > average cost?
AC is increasing
profit maximised?
where MC = MR
marginal revenue increase?
when quantity increase
MR > MC?
increase production (quantity)
MR < MC?
deacrease production (quantity)
MR = MC?
max profit
economies of scale?
occur when doubling the inputs result in more than doubling the outputs
diseconimies of scale?
occur when doubling the inputs result in less than doubling the outputs
monopolies?
- single firm controls the entire supply in a market
- no substitutes
- price setters
- monopoly’s demand = market demand
barriers to enter monopolies?
- exclusive ownership of a resource
- legal
- cost of production
to determine profit margin ratio of monopolies?
( P - MC) / P
model of perfect competition?
sellers and buyers are price takers
there has to be? (model of perfect competition)
- many buyers
- many sellers
- homogeneous product
- must know all relevant information about the market
in perfectly competitive market?
- all transactions must occur at single price
- at that price, the quantity supplied = quantity demanded
- no shortages/ surplus
- pareto efficient
