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by: Eloise Smitham


Eloise Smitham
GPA 3.63


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Class Notes
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This 4 page Class Notes was uploaded by Eloise Smitham on Saturday September 12, 2015. The Class Notes belongs to ECON 2106 at University of Georgia taught by Sandifer in Fall. Since its upload, it has received 9 views. For similar materials see /class/202509/econ-2106-university-of-georgia in Economcs at University of Georgia.




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Date Created: 09/12/15
ECON 2106 Exam 3 Study Guide Excludable Rivalrous Public Goods No No Tornado siren national defense uncongested non toll road positive externality Private Goods Yes Yes ce cream cone clothing congested toll road Common Resources No Yes Fish in the ocean environment congested non toll road Natural Monopolies Yes No Fire protection cable TV uncongested toll road Formulas Explicit Costs require direct outlay of money by the firm Ex Wages rent utility Implicit Costs do NOT require direct outlay of money by the firm Ex Value of entrepreneur s labor and interest that could be earned ifthe owner s assets were not tied up in the company Economic Profit TR TC including both kinds of costs Accounting Profit TR TCepricit Accounting profit is usually higher than the economic profit but these two may be the same if there are no implicit costs and only explicit costs The production function shows the relationship between the Qof inputs used to make a good and the Qof output of that good The marginal product is the increase in output that arises from an additional unit of input The slope of the production function is the marginal product The production function becomes flatter as the marginal product declines Diminishing marginal product says that the marginal product of an input declines as the Qof input increases Total Costs Fixed Costs Variable Costs 39xed C I Variable Costs DO vary with the q ofoulpul produced osts do NOTvarv with the q ofoulpul produce they are set Marginal Cost measures the increase in TC that arises from an extra unit being made Bottom of the ATE curve representsthe ef cient scale oflhe lirm when MCltATC ATC is falling when MCgtATC ATC is ris39ng Casts 5300 250 MC 200 150 ATC 100 AVG 050 AFC o 2 4 s a 10 12 14 Quantity aioiitput Tr I Average Mal ATCln short Arc in slmrt ATC in art ust run w run With mrl sinall factmy wlth nreuiurnlactery largeiaciary ATL lnlangllln 12000 10000 Econamles t scale DliemnumlES a 1000 1200 Type of Market Perfect Competition Monopoly Monopolistic 7 Competition if of Sellers Type of SR Profit LR Profit Product Homogeneous PMRMCAR Unique One Product no PgtMRMCAR O 0 close substitutes Many Differentiated PgtMRMCAR 0 O 0 Perfect Competition 0 Price takers do not affect the market because there are so many sellers 0 PriceMC 0 Horizontal demand 0 MR gt MC increase Q MR lt MC decrease Q MR MC profit is maximized 0 Shut down is a SR decision and is concerned with VC but not FC because FC are sunk costs I Shut down if P lt AVC I Shut down if TRQlt VCQ I Shut down if TR lt VC 0 EntryExit into the market is a LR decision that takes into affect all costs there are no barriers to entry or exit in perfect competition I Enter market if P gt ATC TR gt TC TRQ gt TCQ I Exit market if P lt ATC TR lt TC TRQlt TCQ o No perfectly competitive firms can earn positive profits in the SR 0 Monopoly o Steep inelastic downward demand 0 There are barriers to entry because market power exists 0 Price gt MC 0 The MR curve always falls below the demand function 0 The socially efficient Q is found where the D curve and MC curve intersect The Monopolist produces less than the socially efficient Q 0 When a monopoly increases the amount that it sells there are 2 effects on TR I Output Effect more output is sold so the Q is higher which increases TR I Price Effect the price falls so P is lower so TR decreases 0 Price discrimination raises the firm s profit Perfect price discrimination monopolists knows exactly the WTP of each customer and can charge each customer a different price 0 Since monopolists produce less than the socially desirable government can respond in 4 ways I Try to make the monopolized industries more competitive I Regulate the behavior of the monopolies o Subsidize the monopolist let the monopolist charge a price that is greater than MC I Turning some private monopolies into public enterprises I Doing nothing at all 0 Monopolistic Competition 0 0 00000 O O O No barriers for entryexit There is some market power because some consumers prefer some products over others Downward sloping demand Flatter demand than monopoly MR curve is always below demand function P gt MR MC the price is set higher than MC because ofthe market power P ATC Excess Capacity the firm could increase the Q it produces therefore lowering the ATC The firm does not do this however because it would have to decrease price in order to sell the additional output Efficient ScaleQ producedexcess capacity Markup over marginal cost P gt MC so an extra unit sold at the posted price means more profit for the monopolistically competitive firm Positive externality the productvariety externality which says that because consumers get some consumer surplus from the introduction of a new product entry of a new firm represents a positive externality Negative externality the businessstealing externality which says that because other firms lose customers and profits from the entry of new competitors entry of a new firm imposes a negative externality


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