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Fichas del conjunto (47)
- 1Theory of costs1. Implicit: opportunity costs of using FOP that the firm's owner already owns
2. explicit: expenses the firm makes to purchase FOPs - 2Fixed and variable costs (explicit costs)1. does it vary with output?
2. associated with fixed or variable factors?
3. does it exist in the short run?
4. does it exist when firms stop production? - 3Drawing1. AVC + ATC cut MC at lowest pt
2. ATC & AVC converge as the decrease in AFC > increase in AVC - 4The different curves1. AFC is downward slopping as constant fixed cost is spread over a larger and larger output
2. if MC < AVC, it must be falling. hence, cut at minimum point
3. MC refers to the additional cost resulting from additional unit of output (TVC + TFC/Q) - 5Optimum Capacity- level of output that corresponds to the minimum level of the ATC, given a fixed plant size
- level of output that in the SR, represents the lowest attainable unit cost for a given capacity/plant size - 6Long run cost curves1. LRAC: lowest possible unit cost for a given level of output where each point represents the least unit cost for producing that level of output, by changing the SRAC cost curves it adopts
2. all points are productive efficient as LRAC envelops the SRAC that yields the lowest AC for each level of output - 7internal Economies of Scalerefers to the reduction of unit costs (Average costs) as output expands. Only occurs in the LR where output increases due to increased scale of production which require all factors to be variable.
- 8Minimum efficient scalelevel of output where LRAC first reaches its minimum level in the long run where firm ceases to experience EOS
- 9Types of internal EOS1. Plant EOS: decrease in unit cost due to increase in productivity as plant size (not necessarily physical but actual production) increases
2. Firm EOS: cost savings due to the spread of overhead costs over a larger output (other functions) - 10Plant EOS1. Specialisation of production process
2. indivisibilities of capital
3. Principle of increased dimensions
4. linked processes - 11Firm EOS1. administrative/managerial economies with specialised departments
2. marketing economies with economies of scope
3. risk bearing economies
4. financial economies - 12External Economies of scaleexpansion of the whole industry, not merely within one firm
- 13External EOS1. economies of disintegration (specialisation through outsourcing)
2. economies of concentration
3. economies of information (state research institutes) - 14External EOS1. external EOS: LRAC shifts downwards
2. external disEOS: LRAC shifts upwards
*changes outside of the firm - 15disEOS1. Internal:
a. complexity of operations (communication & coordination)
b. labour motivation and productivity
2. External:
a. increased competition = increase in COP
b. wasteful competition
c. congestion and higher transport costs - 16Time frame1. SR: Law of diminishing returns
2. LR: EOS - 17Qn 1: in the SR, why do diminishing marginal returns set in?it is due to inefficient factor combination with additional units of variable factor adding more to cost than output = results in U shape of MC curve
- 18Qn 2: what is the relationship between capital intensity of a production process and the MES?the more capital intensive the production process it, the more EOS the firm can reap and therefore MES occurs at a larger level of output
- 19Market powerfirm's ability to influence market price where they can increase prices of goods without loosing all sales (PED<1)
- 20Sources of market power1. Barriers of entry (number)
2. product differentiation (closeness- willing to pay higher hence can set price) - 21Barriers of entrynatural: financial (huge start up cost), EOS, transportation costs
artificial: entry deterence (advertising, innovation, limit pricing), aggressive tactics (predatory pricing (price war)), legal barriers (patents, copyright, licences, trade barriers) - 22Structure of a market1. barriers to entry and exit
2. number of sellers and buyers
3. nature of product
4. level of market info - 23Key characteristics1. PC:
a. price takers
b. perfect info of other firm's profits (entry and exit)
c. perfect info on prices (horizontal PED)
d. inability of advertising
e. perfect info on cost structures (productive efficient) - 24Key characteristicsMC:
a. no mutual interdependance
O:
a. few dominant firms
b. mutual inter-dependance - 25Shut down and exit rule1. in the SR, shut down if TR
- 26Long run profits (due to entry barriers)1. Perfect C = normal
2. monopolistic C = normal
2. o + m = all 3 types - 27Key characteristicsO:
1. collusive model: agreement to divide the market or fix the market price to max. profits
a. explicit: agree openly on a common, uniform price
a. implicit: price leadership by (dominant firm, low-cost firm, biometric price leader) - 28more on collusion1. explicit
a. incentive to cheat
2. criteria
a. sellers cannot be significantly larger
b. products has to be homogenous to have same MC to agree on a price
c. presence of dominant firm as regulator - 29Limitations of competitive model (within the oligopoly industry)1. price war
2. limit pricing
3. non price competition (advertising, innovation) - 30Perfectly competitive firm1. productive efficiency (produce at MES) & X-efficient
2. allocative efficiency
3. dynamic inefficiency
4. no consumer choice
5. equity (normal profits in LR) - 31Monopolistic competitive firm1. productive efficiency & X-efficient
2. allocative inefficiency
3. dynamic inefficiency
4. little consumer choice
5. equity (normal profits in LR) - 32Oligopoly1. productive efficiency & X-efficient
2. allocative inefficiency
3. dynamic efficiency (helps with non-price competition)
4. consumer choice
5. Inequity (supernormal profit at expense of consumers) - 33Monopoly1. productive efficiency
a. but tend to have X-inefficiency (does not actively curb cost)
2. allocative inefficiency
a. EOS allows for lower price and higher output but still not allocative efficient
3. dynamic efficiency
a. less likely than oligopolies due to competition
4. no consumer choice
a. contestable markets
5. Inequity (supernormal profit at expense of consumers) - 34Monopoly vs PC1. allocative inefficient
2. over time, more dynamic efficient and possibly lower cost (process innovation) - 35consumer chocie (MC vs PC)1. MC produces on the downward sloping part of LRAC hence charges higher
2. MC has more variety due to differentiation - 361) Price discriminationa. consumers pay more/less
b. increased efficiency + break into other markets and inc competition
c. improve equity - 371) price discriminationcriteria
1. able to set price
2. able to differentiate market with different PED
3. markets must be kept separate
examples
1. magazine subscription with student fare
2. transport rates with consessions
3. fast food companies with coupons
4. movies tickets with student prices - 382) Advertising1. create brand loyalty and generate higher, more price inelastic demand
2. creates barriers to entry by raising market penetration costs - 393) Product and process innovation1. firms: competitor firms loose revenue
2. consumers get better quality and lower prices
3. more dynamic efficient + export competitiveness + actual and potential growth + structural unemployment - 404) Growth of firms to increase EOS1. internal: more plants/ new outlets/ advertising/ innovation
a. internal EOS
b. financial constraints
c. uncertainty of success (R&D + advertising)
2. external: merger/acquisition
a. EOS + Lower competitions + risk diversification - 41More on external growth of firms1. horizontal (same stage of production, same industry)
a. diversify products
b. increase market share
c. lower unit cost (EOS)
2. Vertical (diff stage of production, same industry)
a. backward (greater control, restrict supply of input (entry barrier))
b. forward (greater control of demand, capture new markets) - 42More on external growth of firms3. lateral (firms selling related, non-competitive products)
a. EOS (joint marketing and R&D)
b. increase XED/PED
c. penetrate new markets
4. Conglomerate (unrelated firms)
a. diversify and spread risks - 43Impact of growth of firms1. competing firms will see a fall in demand + barriers to entry
2. consumers enjoy lower prices due to cost savings (higher in the long run due to market share)
3. increased dynamic efficiency but reduced allocative and productive efficiency due to market power
a. lower prices could increase economic growth - 44Theory of contestable markets to encourage competitive behaviour1. where firms that are already in the market are constantly threatened by the entry of new firms
2. factors:
a. sunk costs
b. possession of exclusive rights
c. extent of information asymmetry/ access to tech - 45Firm's objectives1. profit maximising
a. lack of info of DD/ PED
2. disregarding implicit costs
2. market share dominance
a. price war
3. entry deterrence (long run)
a. limit pricing
b. advertising
c. innovation
4. revenue maximising (MR=0)
5. profit satisfying
6. social objectives (Green firms) - 46impact of entry deterrence1. other firms face high barriers to entry
2. consumers may gain from lower prices and innovation but lose from lack of competition
3. lower competition affective allocative, productive and dynamic efficiency - 47impact of revenu emaximising1. fall in profits for competiing firms
2. consumers enjoy lower prices in SR but less choices due to lower emphasis on innnovation
3. imporved equity due to less supernormal proft but less dynamic and productive effcinecy
Información
- Descripción
- Firms and Decisions - Market Structure
- Creado por
- 17A13 THAVEESHA DILUNI THENUWARA
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