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When is it a Fixed cost?
When Cost is independent of Q.
What is AC?
Average cost (Ac): Total cost per unit produced.
What does Economies of scale do with AC?
Give falling AC. Profit maximisation is given by MR = MC with monopoly Profits.
What are Monopolistic competition?
Differentiated goods. each company takes other companies prices as given.
When does The individual company sells more in a monopolistic competition?
if:
- total sales of the Sector increase.
- other companies ask a higher Price.
When does The individual company sells less in a monopolistic competition?
if:
- More other companies in the sector.
- You ask for a higher Price.
What is CC?
Average cost curve (CC) n ↑ → lower market share. Q down → higher average cost.
What is PP?
Pricing curve (PP) n ↑ tougher competition. Reduced price mark up.
What means A larger market?
more firms overall, but fewer per country.
What are the consequences of Openness to trade?
higher welfare in terms of lower price and more varied products
Describe Intra-industry trade?
Trade between similar countries:
- Product differentiation and internal economies of scale.
- trade brings lower prices and greater Product variety, and larger (more efficient) firms.
- Not based on competitive advantage. (Productivity/resources)
What does Productivity differences lead to?
Profit differences even without trade. Higher profit for the more efficient firm due to higher mark-up and larger quantity. Economic integration (a larger market) amplifies the effects. Higher profits for efficient firms and on average higher efficiency.
What happens with the traded price if there is economies of scale?
The traded price can be lower than the non-traded price in all countries and we have more differentiated products to choose from.
What is negative With external economies of scale for less developed countries?
An initial head start can be insurmountable even for countries With potentially lower costs. Countries can then lose out on trade, and temporary Protection can boost welfare.
What happens with AC when there is internal economies of scale?
We get lower average cost if the company is larger.
