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ACDC2 (Unit 3 (cost of production (costs (concepts (Average costs (average…

- - - - concepts
        
        resources
        
        types
        
        variable
        
        fixed
        
        short run production
        
        at least one resource is fized
        
        concepts
        
        total physical product (TP)
        
        marginal product (MP)
        
        change in total product/change in input
        
        the law of diminishing marginal returns
        
        when variable resources (workers) are added to fixed resources (restaurant equipment) the additional output from each additional worker will eventually fall
        
        three stages of return
        
        specialization
        
        the additional output for each additional worker is increasing
        
        diminishing marginal returns
        
        the additional output from each additional worker is decreasing
        
        negative marginal returns
        
        the TP is decreasing with each additional worker
        
        the average product
        
        total product / number of workers
        
        long run production
        
        all resources are variable
    - - concepts
        
        fixed costs
        
        variable cost
        
        total costs
        
        marginal cost
        
        additional cost of an additional output
        
        how much is that one more pizza costing the company?
        
        Average costs
        
        average variable costs (AVC)
        
        average fixed cost (AFC)
        
        average total cost (ATC)
      - types
        
        short run costs
        
        at least one resource is fixed
        
        long run costs
        
        all resources are variable
        
        no law of diminishing returns
        
        concepts
        
        long run average total cost
        
        three stages
        
        economies of scale
        
        2 more items...
        
        constant returns to scale
        
        1 more item...
        
        diseconomies of scale
        
        economic costs
        
        implicit costs
        
        the opportunity cost that firms pay for using their own resources
        
        explicit costs
        
        accountant cost
        
        looks only at explicit costs
  - - - monopolistic competition
      - oligopoly
      - monopoly
      - perfect competition
        
        characteristics
        
        identical products (perfect substitutes)
        
        low barriers of entry and exit
        
        seller has no need to advertise
        
        firms are price takers
        
        many small firms
        
        graph
        
        MR=D=AR=P
    - - shut down rule
        
        when the price falls below the AVC
      - long run
        
        all firms break even, they make no economic profit (normal profit)
        
        if there is a profit
        
        firms will enter
        
        if there is a loss
        
        firms will leave
        
        they are both allocatively and productive effecient
        
        constant cost industry
        
        shift in demand will cause the price an quantity to increase in the short run, in the long run more companies will enter and the price will go back to where it was before the increase in demand
        
        increasing cost industry
        
        when new companies enter they bid up the prices for resources so the price will not go back to the same level as before
      - efficiency
        
        production efficiency
        
        producing at the lowest possible cost
        
        minimum ATC
        
        allocative (socially optimal) efficiency
        
        producing at the amount most desired by society
- - - - features
        
        one large firm the firm is the market
        
        unique product no close substitutes
        
        high barriers - firms cannot enter
        
        price makers
        
        demand curve is not equal the MR curve for a non -discriminatory monopoly
        
        in order to sell another unit the company must lower the price for all units that it would have sold for the higher price, this cause the MR to have a steeper angle than the demand
      - efficiency
        
        inefficiency
        
        three resons
        
        dont produce what society wants, is not allocatively efficient
        
        they don produce where the price equal the MC
        
        produce at higher costs, not productively efficiency
        
        they are not producing at the lowest cost min ATC
        
        charge higher price
        
        monopolies are inefficient relatively to societies needs, they generate deadw
        
        natural monopolies
        
        features
        
        its natural because only one firm on the market allows for lowest cost of production
        
        ATC is still going down at the allocatively efficient quantity (social optimal)
        
        reasons
        
        economics of scale
      - regulation
        
        reasons
        
        keep prices low to avoid dead weight loss
        
        strategies
        
        socially optimal price
        
        P=MC allocative efficiency
        
        fair return (break-even)
        
        P=ATC (normal profit)
      - price discrimination
        
        features
        
        selling the same product to different buyers at different prices
        
        converts consumer surplus to profit
        
        no dead weight loss
        
        examples
        
        airline tickets
        
        brändbollsyran
        
        criteria
        
        price maker
        
        must be able to segregate the market
        
        no second hand market
    - - features
        
        relatively large number of sellers
        
        differentiated products
        
        some control over price
        
        low barriers of entry and exit
        
        a lot of non price competition
        
        strategic marketing
      - efficiency
        
        not allocatively efficient
        
        not productive effecient
        
        excess capacity
        
        It can produce at a lower cost but it holds back production to maximize profit
      - same graph as monopoly only that there is both a long run and a short run graph
    - - features
        
        a few large producers less than 10
        
        identical or differentiated products
        
        high barriers to entry
        
        types
        
        economies of scale
        
        high start-up costs
        
        ownership of raw materials
        
        control over price
        
        mutual interdependent
        
        firm use strategic pricing
      - game theory
        
        conceptual tool for selecting strategy in interdependant interaction with competitors
        
        models/tools
        
        game theory matrix
        
        concepts
        
        dominant strategy
        
        what the firm should do regardless of what the other firm does, sometimes there are no dominant strategy
        
        nash equilibrium
        
        the outcome that will occur when both firms make decisions simultaneously and have no incentives to change
      - types
        
        price leadership
        
        one dominate firm initiate a price change
        
        other firms follow the leader
        
        colluding oligopoly (cartel)
        
        illigal
        
        set price an output at an agreed upon level
        
        firms require identical or highly similar demand and cost
        
        cartels must have a way to punish cheaters
        
        they work together as monopolies
        
        non-colluding oligopoly