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30 Cards in this Set
- Front
- Back
allocative efficiency (concept)
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1. all consumers willing to pay cost of production gets the good
2. social welfare is maximized |
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productive efficiency (concept)
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1. P = min ATC
2. maximize production |
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allocative efficiency (formula)
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price = marginal cost
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productive efficiency (formula)
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price = minimum ATC
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dynamic efficiency
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if monopolist spends profits on new technology, then (we might get higher growth) higher growth is possible (a case FOR monopoly)
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reasons for advertising
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1. increase demand
2. introduce a new product 3. take advantage of economies of scale |
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types of advertising
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1. informative (reduce search and info costs)
2. persuasive (provide little info., try to convince consumer) |
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consumer benefits of advertising
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1. introduce a new product (S increases P decreases)
2. economies of scale ( costly --> P decreases) 3. reduce search and info costs |
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criticisms of advertising
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1. is a nonproductive of wasted resources for "stealing" profits
2. it increases prices (costs go up so profit goes down) |
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case against monopoly competition
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1. P > MC (no allocative efficiency)
2. P > min LRATC (no productive eff.) 3. P > min SRATC (excess capacity) ** price is BIGGER than all these costs |
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case for monopoly competition
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1. variety good
2. consumers value options |
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LR competitive equilibrium (formulas)
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1. LR economic profit = 0
2. Qs = Qd |
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Marginal reveune (forumla)
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MR = change total revenue
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monopoly
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a firm that is the only seller of a good, with no competition
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price taker
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(in a ompetitive market), buyers and sellers cannot decide what price they will accept, since they have no significant influence on the much larger market. Insteadm they have to accept the market price and make their decisions accoedingly
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price discrimination
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practice of charging different groups of buyers different prices based on differences in elasticity rather than cost
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conditions for price discrimination
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1. some monopoly power
2. two groups of buyers with different Ep 3. prevention of resale |
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Monopolistic competition
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1. many small buyers and sellers
2. differentiated products (products that vary from one producer to the next) 3. no barriers to entry or exit |
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homogeneous products
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products that are identical, no matter which firms in the industry produce the commodities
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barrier to entry (def.)
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exist when investors find obstacles to joining a profitable industry. This includes anything that makes producing and selling output more difficult for a new firm than for an existing one.
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types of barriers to entry
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1. public franchise
2. government license 3. economies of scale |
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normal rate of return
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the minimum profit necessicary to attract and retain investment
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factors that shift demand
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demand and price are inveresly related.
affected by changes in income, price and relative price |
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profit (formula)
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quantity x (price - average cost)
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total revenue (formula)
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price x quantity
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profit maximization (formula)
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MC = MR
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breakeven price (formula)
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economic profit = 0
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shutdown price (formula)
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price = average variable cost
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total cost (formula)
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total fixed cost + total variable cost
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characteristic of perfect competition
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1. homogeneous products
2. no barriers to entry or exit 3. perfect information |