Microeconomics Chapter 10 Notes
Microeconomics Chapter 10 Notes ECON 1010
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This 2 page Class Notes was uploaded by Danyn Notetaker on Friday April 8, 2016. The Class Notes belongs to ECON 1010 at Tulane University taught by Armine Shahoyan in Summer 2015. Since its upload, it has received 8 views. For similar materials see Microeconomics in Economcs at Tulane University.
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Date Created: 04/08/16
Four Market Models - Pure competition - entails a large number of ﬁrms, standardized product, and easy entrance by new ﬁrms - At the opposite extreme, pure monopoly has one ﬁrm that is the sole seller of a product or service with no close substitutes; entry us blocked for other ﬁrms - Monopolistic competition - is close to pure competition, except that the product is differentiated among sellers rather than standardized product - An oligopoly is an industry in which only a few ﬁrm exist, so each is affected by the price Pure Competition: Characteristics and Occurrence - The characteristics of pure competition: • Pure competition is rare in the real world, but model is important - Model helps analyze industries with characteristics similar to pure competition - Model provides a context in which to apply revenue and cost concepts developed in previous chapters - Pure competition provides a norm against which to compare and evaluate the efﬁciency of real world • Many seller means that there are enough so that a single seller has no impact on price by its decisions alone • The products in a purely competitive market are homogeneous/standardized, each seller’s product is identical to its competitor’s • Individual ﬁrms must accept the market price; they are takers and exert no inﬂuence over price - There are four major objectives to analyzing pure competition • To examine demand from the seller’s P.O.V. • See how a competitive producer responds to market price in the short run Explore nature of long run adjustments in a competitive market • • Evaluation efﬁciency of competitive industries Demand as Seen by a Purely Competitive Seller - Individual ﬁrm will view its demand as perfectly elastic • Demand sure isn’t perfectly elastic for the industry: only appears that way for individual ﬁrm Average, Total, and Marginal Revenue - Average Revenue- price per unit for each ﬁrm in pure competition - Total revenue- Price x quantity sold - Marginal Revenue - change in total revenue and will also equal unite prince in conditions of pure competition Proﬁt Maximization in Short Run: Two Approaches - In the short run a ﬁrm has ﬁxed plant and maximizes proﬁts or minimizes losses by adjusting output; proﬁt=TC-TR - Three Questions that must be answered • Should ﬁrm produce? • If so, how much? • What will be the proﬁt/loss? - Firm shit down if the losses are greater than the ﬁxed cost - MR=MC rule means that the ﬁrm will maximize proﬁts/minimize losses by producing at a point which MR=MC in the Short Run Three features of this MR=MC rule are important • - Tule assumes that MR is less than or equal to the minimum average variable cost or ﬁrm will shut down - Rule works for ﬁrms in any type of industry - Price=MR - Determining equilibrium price for a ﬁrm and an industry • Total-supply and total-demand data must be compared to ﬁnd the most proﬁtable price and output levels Firms Vs. Industries - Firm vs. industry: individual ﬁrms must take price as given, but the supply plans of all competitive producers as a group are a major determinant of product price
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