Microeconomics (Monopoly & Perfect Competition)

A firm that is the sole seller of a product without any close substitutes.

A firm whose own activity in the market affects price. The firm has the ability to choose among combinations of price and output.

A monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms.

Factors that cause a producer's average cost per unit to fall as output rises, helps explain the natural monopoly.

equals the price of a good.

is ALWAYS less than the price of its good, and by extension its Average Revenue.

The situation in which an increase in the price of one input will increase a firm's production costs and reduce its level of output, thus reducing the demand for other inputs; conversely for a decrease in the price of the input.

After a price increase, each unit sold sells at a higher price, which tends to raise revenue, despite the inclination of people to buy goods at least in the case of a monopoly.

is equal to the change in total revenue due to a one unit change in the quantity sold and produced

The monopolist _____ __________ quantity of output is determined by the intersection of the marginal revenue curve and the marginal cost curve. The price at that quantity is determined by a demand curve.

Monopolies do not have a ________ _______. This is because they are price makers.

the business practice of selling the same good at different prices to different customers

Describes a situation in which the monopolist knows exactly the willingness to pay of each customer and can charge each customer a different price (in this case, the monopolist charges each customer exactly his willingness to pay, and the monopolist gets the entire surplus in every transaction)

Taxes on imported goods

restrictions on who can start a business or who can say in a business

economies of scale
government restrictions
ownership of resources without substitutes

because it is the entire industry

a graph showing how the demand for a commodity or service varies with changes in its price.

The perfect competitor can sell its entire output without lowering its price whereas a monopolist cannot

1. imperfect substitutes
2. consumers have unlimited wants but limited budgets

1. look at total revenues and total costs
2.look at marginal revenues and marginal costs

The incremental cost of producing any more units will exceed incremental revenue therefore it is not worthwhile.

The maximum price for which a given quantity can be sold

Marginal revenue equals marginal cost

1st- determine profit-maximizing rate of output by the total revenue-total cost method or marginal revenue-marginal cost method
2nd- Use the demand curve to determine max price

P*Q
or
Market Price*Total Hourly Input

Total Revenue - Total Cost
or
TR - TC

Total Cost / Total Hourly Input
or
TC / Q

Change in Total Cost / Change in Total Hourly Output
or
^TC / ^Q

Change in Total Revenue / Change in Total Hourly Input

1. Large number of buyers and sellers
2. Buyers and sellers have access to information
3. Product is homogeneous
4. Any firm can enter or exit easily

1. Firm must face a downward-sloping demand curve
2. Firm must be able to readily and cheaply identify buyers or groups of buyers with predictably different elasticities of demand
3. firm must be able to prevent resale of the product or service

Differences in price that reflect differences in marginal cost

Firms produce the quantity that maximizes total profit. Total profit is maximized at the point where marginal cost = marginal revenue, or MC = MR

Find the quantity a firm will produce by drawing a line down from the point where MC = MR
Profit = revenue - cost; it can also be expressed as average revenue - average cost
Find the point where your dotted line intersects Average Total Cost (ATC)
Draw a line over to the vertical axis. This will create a rectangle, using the marginal revenue line as the other side
The area of this rectangle represents total profit

->When MR exceeds MC, each additional unit of output adds more to TR than to TC, so the additional unit should be produced.
->When MC is greater MR, each produced unit adds more to TC than to TR so this unit should not be produced

profit maximization occurs a the rate of output at which marginal revenue equals marginal cost

The positive difference between total revenues and total costs

a collection of firms producing particular product

By adding the quantities that each firm supply's at every price

increasing production whenever MC is less than MR

The firm is losing money

As supply and demand shift outward, prices remain constant.

As supply and demand shift outward, prices increase.

As supply and demand shift outward, prices decrease.

The point where a firm loses less money by halting production instead of operating at a loss. The shutdown point is where price equals average variable cost.

when their are barriers to entry which have 3 main sources: Monopoly resources, Government regulation, and the production process

charges a price greater than marginal cost

producing the quantity where marginal cost equal marginal revenue and charging the price that corresponds to that quantity.

The price at which the firm is only making enough money to cover implicit and explicit costs