Business Economics - Assignment Essays

question

perfect compettion

answer

...

question

monopolistic competition

answer

Large number of firms
Each firm produces good/service that they think is unique
Relatively easy for new firms to enter
Imperfect information

question

Oligpoly

answer

Few, large, mutually interdependent firms
Firms may produce similar or highly differentiated products
significant barriers to new entry
imperfect information

question

Monopoly

answer

One firm producing a good/service with no substitutions
New entry is blockaded
Imperfect infomation

question

Demand Function

answer

The cheaper something is, the more of it people will be demanded. More expensive it is, less of it will be demanded.

question

Giffen Goods

answer

the more expensive the good, the more people will demand it. Ex. Pearls

question

Why do managers focus on price?

answer

It is the factor that is within management's control. And it is the most important factor in determining demand.

question

Nonprice factors influencing demand

answer

Tastes and preferences
Consumer's income level
Future expectations of price (if you think price is going to drop in the future, you buy less of it now)
Number of potential consumers

question

Infierior good

answer

The richer you are, the less you buy of it. The poorer you are, the more you buy of it. Ex. Raman noodles

question

Normal Good

answer

the richer you are, the more you're able to afford it. The poorer you are, the less able you are to afford it. Ex. Steak

question

Substitute Goods

answer

Using one product in place of another, interchangeable. Ex: pizza and spaghetti

question

Complementary goods

answer

Products or services that consumers use together. Ex: peanut butter and jelly, computers and printers, pizza and beer

question

Demand curves

answer

Downward sloping, with a negative relationship between the price or a good and the quantity demanded

question

Shift in demand curve

answer

Change (increase) in demand. Shift occurs for any other reason. Ex: study of wine makes demand increase bc people's tastes and preferences change.

question

Movement along demand curve

answer

change (increase) in quantity demanded. Only occurs because of change in price.

question

Elastic Demand

answer

sensitive to price
> 1
DO not increase prices, you will lose revenue
If you drop prices, you will get higher revenue
Decrease elastic

question

inelastic demand

answer

insensitive to price
<1
Jack up the price to make money. Demand will only fall a little bit and revenue will go way up.
price decrease results in lower total revenue
Increase inelastic

question

price elasticity of demand

answer

%change in quantity demanded/%change in price
QP mayo

question

Elastic demand impact on marginal revenue

answer

MR is positive

question

Inelastic demand impact on marginal revenue

answer

insensitive is a negative thing. MR is negative

question

Nonprice factors influencing demand

answer

Tastes and preferences
Income
Prices of goods related in consumption
Future expectations
Number of potential customers

question

Nonprice factors influencing supply

answer

Technology
Input prices (raw materials)
prices of goods related in production (subs and compliments)
future expectations
number of producers

question

Demand Function

answer

Substitute goods: positive relationship
Complimentary goods: negative relationship
Beer and pizza are compliments: if the price of pizza goes down, the quantity demanded of beer goes up

question

Supply function

answer

substitute goods: negative
complimentary goods: positive

question

What would not cause the supply curve for gasoline to shift?

answer

A change in the income of workers

question

Levis brand jeans vs blue jeans in general

answer

Price elasticity of demand is larger for Levis brand than for blue jeans in general

question

Expert Opinion

answer

develop consensus of opinion among experts to analyze consumer behavior

question

Direct consumer surveys

answer

directly asking consumers questions about their response to prices, price changes or price differentials

question

Conjoint analysis

answer

asks consumers to rank and choose among different product attributes, including price to reveal their valuation of these characteristics

question

Test marketing

answer

analyze consumer behavior by analyzing consumer response to products in a real or simulated markets

question

Price experiments

answer

Consumer reaction to different prices is analyzed in a lab situation or a test market environment

question

Targeted marketing

answer

defining different market segments or groups of buyers for particular products based on demographic, psychological and behavioral characteristics of the individuals

question

Pitfalls with marketing methods of evaluating consumer demand

answer

are representing groups truly representative of the larger population? do the answers given represent actual market behavior?
can we isolate the effects of different variables that influence demand?

question

Multiple regression analysis

answer

estimate the effect of each relevant independent variable on the quantity demanded of a product, while holding constant the effects of all other independent variables. ISOLATE THE IMPACT

question

Regression methodology

answer

Using historical data to make predictions about how variables will affect future demands

question

Regression analysis

answer

an equation that produces a straight line, that best fits the data. Minimizing the sum of the squared deviations of the sample data points

question

Cross sectional data

answer

sample of individuals with different characteristics at a specific point in time. 50 students, hrs studied each, greate of each student's exam

question

Time series data

answer

collected on the same observational unit at a number of points in time
1 student, hours studied on 30 different exams taken

question

Panel data

answer

cross sectional data observed at several points in time. Very hard to analyze

question

T test

answer

used to test the hypothesis that a coefficient is significantly different from zero. T>= 2

question

Coefficient of determination (R squared)

answer

the goodness of fit of the entire estimating equation to the data set

question

Q = a - b (P)

answer

Q= quantity demanded
a= the intercept when P=0
b= the slope of the line, change in Q/change in P
P=price

question

Production function

answer

relationship between flow of inputs and the resulting flow of outputs in a production process
measure of firm's ability to produce. how much firm supplies given how much it invests and how much it works

question

Short run

answer

at least one input is fixed

question

Long run

answer

a period of time during which all inputs are variable

question

Average Productivity

answer

Total productivity (Q)/Labor

question

Marginal Productivity

answer

Change in TP / Change in L

question

Why does total productivity peak then decline?

answer

Firm should not have too many employees. too many cooks spoil the broth

question

Why Marginal productivity peaks where it does?

answer

WIth each person added, the benefit inreases at in increasing rate (synergy). Eventually the huge benefit of each additional person declines, (benefit still increases, but at a decreasing rate)
CC team expansion, we lost synergy

question

Law of diminishing marginal returns

answer

the region of the marginal product curve where the curve is positive, but decreasing. Total product curve is increasing at a decreasing rate. The area on the curve that flattens out

question

MP interests AP at the average productivity's peak

answer

Average productivity still rises, even as MP declines because of additional TP

question

Production Cost

answer

the relationship between the cost of production and the level of output

question

Opportunity Cost

answer

the measure of cost that reflects the use of resources in one activity, in terms of the opportunities forgone in undertaking the next best alternative activity

question

Explicit opportunity cost

answer

Actually cost to society, it is something that is actually paid

question

Implicity opportunity cost

answer

the value of the resource is not actually paid. I gave up a $50,000 job to pursue an MBA program at $40,000. Implicit cost of doing the MBA is $90,000

question

Profit

answer

PriceQuantity-CostQuantity

question

Accounting Profit

answer

Total revenue - explicit total costs

question

Economic Profit

answer

Total revenue-total cost (implicit and explicit costs of production)

question

Short run cost function

answer

at least one fixed input of production

question

Fixed Cost

answer

total cost of the fixed input, regardless of the units of output produced

question

Variable Cost

answer

total cost using the variable input, which increases as more output is produced. Ex: wage per worker or per hour

question

Marginal Cost

answer

How much does it cost to produce one more additional unit of output
Change in total cost Change in quantity

question

Total Cost Curves

answer

Total Cost on the Y
Quantity on the X

question

Total Fixed Costs

answer

Fixed capital (K) * cost of unit production

question

Total Variable Cost

answer

Labor (L) * labor cost per unit

The curve is steep, flat, steep because the change in Quantity demanded is small (the denominator), then large then small. All over a constant increase in cost

question

Why does average fixed cost curve decline?

answer

Because total fixed cost is constant as Q increases, which leads to a decline in AFC curve

question

Why does AVG decline at first and then evenutally increase?

answer

Numerator is Total Variable cost which is increasing at a constant rate, while the denominator is increasing at an increasing rate, and then increasing by a decreasing rate

question

Why does ATC get to its lowest point after AVC?

answer

Because AFC is still declining, so it pulls the average total cost down. As the AVC bottoms out, the Q increases at a decreasing rate, making AVC increase a lot and starts to pull ATC up as well

question

Marginal Cost

answer

Change in Total cost/ Change in Quantity demanded= Change in total variable cost/change in quantity demanded

question

Marginal cost curve and AVC and ATC curves

answer

MC always intersects AVC and ATC at their minimums. Once MC is greater than the AVC then it will start to pull up the AVC and ATC curves

question

Why are short run production and cost curves inverses of each other?

answer

If you have high level of production efficiency, then it will lead to low costs

question

Long run production function

answer

All inputs can vary, in the long run nothing needs to be fixed.

question

Input substitution

answer

manager's choice of inputs influenced by: technology of the production process, the prices of the inputs of production, the set of incentives facing the given producer

question

Long run average cost function

answer

minimum average or unit cost of producing any level of output when all inputs are variable

question

When K increases

answer

Labor also increases and quantity demanded increases. You need more people to work more machines, or more people to work in larger factories

question

Economies of scale

answer

Increase k, increase q, SRAC shifts down then goes up. Exists when the firm can achieve lower units costs of production by adopting a larger scale of production

question

Diseconomies of Scale

answer

When the firm incurs higher unit costs of production by adopting a larger scale of production

question

Economies of scale up to a specific Q

answer

Specialization and division of labor (large firms have specialized employees who do one thing and do it very well)
Technological factors (doesn't make sense for a small firm to buy an expensive high-tech machine to produce so many Qs
The use of automation devices (doesn't make sense if you only sell in small batches)

question

Reasons for diseconomies of scale

answer

1. too much specialization
2. local labor and consumer market may be insufficient for large firms
3. physical laws
4. Inefficiencies of managing large-scale operations

question

minimum efficient scale

answer

where long-run average cost curve stops declining or at which economies of scale are exhausted

question

Perfect competition profit maximization

answer

Where MR= MC

question

cost minimization point

answer

where MC equals lowest point on ATC

question

Why can't other firms enter a monopoly's market?

answer

Economies of scale, barriers created by government, input barriers, brand loyalties, consumer lock-in and switching costs, network externalities

question

Lerner Index

answer

goods price - marginal cost/price should be > .67. Form in perfect competition has L=0

question

cross price elasticity and monopolies

answer

if a firm doesn't have cross price elasticity, then the firm is a monopoly. No perceived substitutes. A monopolist could have negative cross price elasticity with complimentary goods.

question

Concentration Ratios

answer

closer a firm's sales is 100% of industry's sales, then the closer it is to being a monopoly

question

Herfindahl-Hirschman Index

answer

sum of squares of market share of each firm in the industry. Higher HHI has more market power

question

Anti Trust issues
Sherman Act of 1890

answer

Promotes competition. Firms selling similar goods cannot conspire, but must compete. Firms with market power cannot abuse it

question

Clayton Act of 1914

answer

cannot set a price specifically to reduce competition. (walmart setting prices below cost) nike can't tell dicks to not sell under armour. BODs can't sit on competitors boards

question

Federal Trade Commission Act of 1914

answer

Prohibits mergers that would be harmful to consumers. Prohibits unfair competition.

question

Monopolistic Competition in the Short Run

answer

MR=MC
Price > ATC
Price > Marginal Cost
Not at minimum point of ATC curve

question

Monopolistic Competition Long Run

answer

P= ATC
P> minimum ATC because demand curve is not flat
Profit maximizing is at MR=MC

question

Cannot cost minimize in Monopolistic Competition

answer

The differentiated product means that because the demand curve is not flat, it's not possible to get Quantity demanded out to the minimum ATC

question

Noncooperative Oligopoly model

answer

assumes the few firms compete with each other, usually benefits consumers but harms the firms. Lowers their profits. Not colluding benefits consumers more

question

Cooperative oligopoly model

answer

Firms explicitly or implicitly cooperate with each other to achieve outcomes that benefit the firms but likely harm consumers

question

Kinked demand curve

answer

Steeper if competitors imitate: it's more like a monopoly
Flatter if other firms don't follow, our firm has no influence on overall market

question

If rivals don't imitate in Oligopoly

answer

we try charging higher price, we will suffer huge drop in quantity demanded

question

Game Theory Model

answer

study of economics that analyzes situations in which firms make various strategic moves and have different outcomes or payoffs associated with those moves

question

Dominant Strategy

answer

doing what's best for you, no matter other's decision. Best strategy no matter what the other person does. leads to non optimal outcomes

question

Nash Equilibrium

answer

Where you make a decision based on what you think the other will do. No dominant strategy

question

Price discrimination

answer

firm charging different prices to different consumers to maximize profits

question

Requirements for successful price discrimniation

answer

Must be in a monopolistic comp, oligopoly or monopoly: firm that has some power in setting prices
must be able to separate customers into different groups
must be able to prevent resale among the different groups of customers

question

First degree price discrimination

answer

Firms with market power are able to charge individuals the maximum amount they are willing to pay for each unit of the product

question

Second degree price discrimination

answer

Firms with market power charge different prices for different Blocks of output
price depends on how many units are bought, similar to quantity discount. not as much extra profit as in the first degree.

question

Third degree price discrimination

answer

Most common. Different cities have different demand functions. Cost of production is the same across all locations, the demand function differs across US, so you charge different price for each location's profit maximizing point.

question

Versioning

answer

Offering slightly different versions of what is essentially the same thing to take advantage of people's willingness to pay more (gap vs. banana republic)

question

Bundling

answer

Makes more money for the firm than if items were to be sold separately

question

Promotional Pricing

answer

sales prices are correct profit-maximizing prices. Firms know that rich lazy people are willing to pay more for less work .You would have to clip the coupon to get the promotional price

1 of 108

question

perfect compettion

answer

...

question

monopolistic competition

answer

Large number of firms
Each firm produces good/service that they think is unique
Relatively easy for new firms to enter
Imperfect information

question

Oligpoly

answer

Few, large, mutually interdependent firms
Firms may produce similar or highly differentiated products
significant barriers to new entry
imperfect information

question

Monopoly

answer

One firm producing a good/service with no substitutions
New entry is blockaded
Imperfect infomation

question

Demand Function

answer

The cheaper something is, the more of it people will be demanded. More expensive it is, less of it will be demanded.

question

Giffen Goods

answer

the more expensive the good, the more people will demand it. Ex. Pearls

question

Why do managers focus on price?

answer

It is the factor that is within management's control. And it is the most important factor in determining demand.

question

Nonprice factors influencing demand

answer

Tastes and preferences
Consumer's income level
Future expectations of price (if you think price is going to drop in the future, you buy less of it now)
Number of potential consumers

question

Infierior good

answer

The richer you are, the less you buy of it. The poorer you are, the more you buy of it. Ex. Raman noodles

question

Normal Good

answer

the richer you are, the more you're able to afford it. The poorer you are, the less able you are to afford it. Ex. Steak

question

Substitute Goods

answer

Using one product in place of another, interchangeable. Ex: pizza and spaghetti

question

Complementary goods

answer

Products or services that consumers use together. Ex: peanut butter and jelly, computers and printers, pizza and beer

question

Demand curves

answer

Downward sloping, with a negative relationship between the price or a good and the quantity demanded

question

Shift in demand curve

answer

Change (increase) in demand. Shift occurs for any other reason. Ex: study of wine makes demand increase bc people's tastes and preferences change.

question

Movement along demand curve

answer

change (increase) in quantity demanded. Only occurs because of change in price.

question

Elastic Demand

answer

sensitive to price
> 1
DO not increase prices, you will lose revenue
If you drop prices, you will get higher revenue
Decrease elastic

question

inelastic demand

answer

insensitive to price
<1
Jack up the price to make money. Demand will only fall a little bit and revenue will go way up.
price decrease results in lower total revenue
Increase inelastic

question

price elasticity of demand

answer

%change in quantity demanded/%change in price
QP mayo

question

Elastic demand impact on marginal revenue

answer

MR is positive

question

Inelastic demand impact on marginal revenue

answer

insensitive is a negative thing. MR is negative

question

Nonprice factors influencing demand

answer

Tastes and preferences
Income
Prices of goods related in consumption
Future expectations
Number of potential customers

question

Nonprice factors influencing supply

answer

Technology
Input prices (raw materials)
prices of goods related in production (subs and compliments)
future expectations
number of producers

question

Demand Function

answer

Substitute goods: positive relationship
Complimentary goods: negative relationship
Beer and pizza are compliments: if the price of pizza goes down, the quantity demanded of beer goes up

question

Supply function

answer

substitute goods: negative
complimentary goods: positive

question

What would not cause the supply curve for gasoline to shift?

answer

A change in the income of workers

question

Levis brand jeans vs blue jeans in general

answer

Price elasticity of demand is larger for Levis brand than for blue jeans in general

question

Expert Opinion

answer

develop consensus of opinion among experts to analyze consumer behavior

question

Direct consumer surveys

answer

directly asking consumers questions about their response to prices, price changes or price differentials

question

Conjoint analysis

answer

asks consumers to rank and choose among different product attributes, including price to reveal their valuation of these characteristics

question

Test marketing

answer

analyze consumer behavior by analyzing consumer response to products in a real or simulated markets

question

Price experiments

answer

Consumer reaction to different prices is analyzed in a lab situation or a test market environment

question

Targeted marketing

answer

defining different market segments or groups of buyers for particular products based on demographic, psychological and behavioral characteristics of the individuals

question

Pitfalls with marketing methods of evaluating consumer demand

answer

are representing groups truly representative of the larger population? do the answers given represent actual market behavior?
can we isolate the effects of different variables that influence demand?

question

Multiple regression analysis

answer

estimate the effect of each relevant independent variable on the quantity demanded of a product, while holding constant the effects of all other independent variables. ISOLATE THE IMPACT

question

Regression methodology

answer

Using historical data to make predictions about how variables will affect future demands

question

Regression analysis

answer

an equation that produces a straight line, that best fits the data. Minimizing the sum of the squared deviations of the sample data points

question

Cross sectional data

answer

sample of individuals with different characteristics at a specific point in time. 50 students, hrs studied each, greate of each student's exam

question

Time series data

answer

collected on the same observational unit at a number of points in time
1 student, hours studied on 30 different exams taken

question

Panel data

answer

cross sectional data observed at several points in time. Very hard to analyze

question

T test

answer

used to test the hypothesis that a coefficient is significantly different from zero. T>= 2

question

Coefficient of determination (R squared)

answer

the goodness of fit of the entire estimating equation to the data set

question

Q = a - b (P)

answer

Q= quantity demanded
a= the intercept when P=0
b= the slope of the line, change in Q/change in P
P=price

question

Production function

answer

question

Short run

answer

at least one input is fixed

question

Long run

answer

a period of time during which all inputs are variable

question

Average Productivity

answer

Total productivity (Q)/Labor

question

Marginal Productivity

answer

Change in TP / Change in L

question

Why does total productivity peak then decline?

answer

Firm should not have too many employees. too many cooks spoil the broth

question

Why Marginal productivity peaks where it does?

answer

question

Law of diminishing marginal returns

answer

the region of the marginal product curve where the curve is positive, but decreasing. Total product curve is increasing at a decreasing rate. The area on the curve that flattens out

question

MP interests AP at the average productivity's peak

answer

Average productivity still rises, even as MP declines because of additional TP

question

Production Cost

answer

the relationship between the cost of production and the level of output

question

Opportunity Cost

answer

the measure of cost that reflects the use of resources in one activity, in terms of the opportunities forgone in undertaking the next best alternative activity

question

Explicit opportunity cost

answer

Actually cost to society, it is something that is actually paid

question

Implicity opportunity cost

answer

the value of the resource is not actually paid. I gave up a $50,000 job to pursue an MBA program at $40,000. Implicit cost of doing the MBA is $90,000

question

Profit

answer

PriceQuantity-CostQuantity

question

Accounting Profit

answer

Total revenue - explicit total costs

question

Economic Profit

answer

Total revenue-total cost (implicit and explicit costs of production)

question

Short run cost function

answer

at least one fixed input of production

question

Fixed Cost

answer

total cost of the fixed input, regardless of the units of output produced

question

Variable Cost

answer

total cost using the variable input, which increases as more output is produced. Ex: wage per worker or per hour

question

Marginal Cost

answer

How much does it cost to produce one more additional unit of output
Change in total cost Change in quantity

question

Total Cost Curves

answer

Total Cost on the Y
Quantity on the X

question

Total Fixed Costs

answer

Fixed capital (K) * cost of unit production

question

Total Variable Cost

answer

Labor (L) * labor cost per unit

The curve is steep, flat, steep because the change in Quantity demanded is small (the denominator), then large then small. All over a constant increase in cost

question

Why does average fixed cost curve decline?

answer

Because total fixed cost is constant as Q increases, which leads to a decline in AFC curve

question

Why does AVG decline at first and then evenutally increase?

answer

Numerator is Total Variable cost which is increasing at a constant rate, while the denominator is increasing at an increasing rate, and then increasing by a decreasing rate

question

Why does ATC get to its lowest point after AVC?

answer

Because AFC is still declining, so it pulls the average total cost down. As the AVC bottoms out, the Q increases at a decreasing rate, making AVC increase a lot and starts to pull ATC up as well

question

Marginal Cost

answer

Change in Total cost/ Change in Quantity demanded= Change in total variable cost/change in quantity demanded

question

Marginal cost curve and AVC and ATC curves

answer

MC always intersects AVC and ATC at their minimums. Once MC is greater than the AVC then it will start to pull up the AVC and ATC curves

question

Why are short run production and cost curves inverses of each other?

answer

If you have high level of production efficiency, then it will lead to low costs

question

Long run production function

answer

All inputs can vary, in the long run nothing needs to be fixed.

question

Input substitution

answer

manager's choice of inputs influenced by: technology of the production process, the prices of the inputs of production, the set of incentives facing the given producer

question

Long run average cost function

answer

minimum average or unit cost of producing any level of output when all inputs are variable

question

When K increases

answer

Labor also increases and quantity demanded increases. You need more people to work more machines, or more people to work in larger factories

question

Economies of scale

answer

Increase k, increase q, SRAC shifts down then goes up. Exists when the firm can achieve lower units costs of production by adopting a larger scale of production

question

Diseconomies of Scale

answer

When the firm incurs higher unit costs of production by adopting a larger scale of production

question

Economies of scale up to a specific Q

answer

question

Reasons for diseconomies of scale

answer

1. too much specialization
2. local labor and consumer market may be insufficient for large firms
3. physical laws
4. Inefficiencies of managing large-scale operations

question

minimum efficient scale

answer

where long-run average cost curve stops declining or at which economies of scale are exhausted

question

Perfect competition profit maximization

answer

Where MR= MC

question

cost minimization point

answer

where MC equals lowest point on ATC

question

Why can't other firms enter a monopoly's market?

answer

Economies of scale, barriers created by government, input barriers, brand loyalties, consumer lock-in and switching costs, network externalities

question

Lerner Index

answer

goods price - marginal cost/price should be > .67. Form in perfect competition has L=0

question

cross price elasticity and monopolies

answer

if a firm doesn't have cross price elasticity, then the firm is a monopoly. No perceived substitutes. A monopolist could have negative cross price elasticity with complimentary goods.

question

Concentration Ratios

answer

closer a firm's sales is 100% of industry's sales, then the closer it is to being a monopoly

question

Herfindahl-Hirschman Index

answer

sum of squares of market share of each firm in the industry. Higher HHI has more market power

question

Anti Trust issues
Sherman Act of 1890

answer

Promotes competition. Firms selling similar goods cannot conspire, but must compete. Firms with market power cannot abuse it

question

Clayton Act of 1914

answer

cannot set a price specifically to reduce competition. (walmart setting prices below cost) nike can't tell dicks to not sell under armour. BODs can't sit on competitors boards

question

Federal Trade Commission Act of 1914

answer

Prohibits mergers that would be harmful to consumers. Prohibits unfair competition.

question

Monopolistic Competition in the Short Run

answer

MR=MC
Price > ATC
Price > Marginal Cost
Not at minimum point of ATC curve

question

Monopolistic Competition Long Run

answer

P= ATC
P> minimum ATC because demand curve is not flat
Profit maximizing is at MR=MC

question

Cannot cost minimize in Monopolistic Competition

answer

The differentiated product means that because the demand curve is not flat, it's not possible to get Quantity demanded out to the minimum ATC

question

Noncooperative Oligopoly model

answer

assumes the few firms compete with each other, usually benefits consumers but harms the firms. Lowers their profits. Not colluding benefits consumers more

question

Cooperative oligopoly model

answer

Firms explicitly or implicitly cooperate with each other to achieve outcomes that benefit the firms but likely harm consumers

question

Kinked demand curve

answer

Steeper if competitors imitate: it's more like a monopoly
Flatter if other firms don't follow, our firm has no influence on overall market

question

If rivals don't imitate in Oligopoly

answer

we try charging higher price, we will suffer huge drop in quantity demanded

question

Game Theory Model

answer

study of economics that analyzes situations in which firms make various strategic moves and have different outcomes or payoffs associated with those moves

question

Dominant Strategy

answer

doing what's best for you, no matter other's decision. Best strategy no matter what the other person does. leads to non optimal outcomes

question

Nash Equilibrium

answer

Where you make a decision based on what you think the other will do. No dominant strategy

question

Price discrimination

answer

firm charging different prices to different consumers to maximize profits

question

Requirements for successful price discrimniation

answer

question

First degree price discrimination

answer

Firms with market power are able to charge individuals the maximum amount they are willing to pay for each unit of the product

question

Second degree price discrimination

answer

question

Third degree price discrimination

answer

question

Versioning

answer

Offering slightly different versions of what is essentially the same thing to take advantage of people's willingness to pay more (gap vs. banana republic)

question

Bundling

answer

Makes more money for the firm than if items were to be sold separately

question

Promotional Pricing

answer

sales prices are correct profit-maximizing prices. Firms know that rich lazy people are willing to pay more for less work .You would have to clip the coupon to get the promotional price

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