Please enable JavaScript.

Coggle requires JavaScript to display documents.

Unit 4 - Coggle Diagram

- - - - Easy to enter and exit market
      - Nonprice competition is non
      - Price takers
        
        Market price
        
        Firm
        
        Profit maximization or loss minimizing in the short run
        
        Total revenue - Total cost approach
        
        Answers to questions
        
        5 more items...
        
        Compare total revenue with total cost
        
        TR-TC
        
        Marginal revenue -marginal cost
        
        Answers to questions
        
        2 more items...
        
        Compare Marginal revenue with marginal cost
        
        MR-MC
        
        Only variable a firm can control is OUTPUT
        
        Profit = ( Price - Average cost ) X Quanity
        
        Three questions
        
        Should we produce?
        
        If so, in what amount?
        
        What economic profit( or loss) will we realize?
        
        No control over price
      - Produce Standardized product
        
        No attempt to differentiate
      - Very Large number of sellers
        
        Thousands
    - - Perfectly elastic demand
      - Market demand is not perfectly elastic
      - Marginal revenue curve coincides with the firms demand curve
      - Average revenue curve coincides with demand curve
      - Demand curves and revenue curves
        
        D=MR=AR
        
        Horisontal curve
        
        TR curve is a straight line upsloping curve
        
        TR= MR X Quantity
      - Price and average revenue is the same thing
    - - As long as P exceeds min AVC
      - Firm continues to produce using the MR(=P)=MR rule
      - Supply graphs as upsloping line
      - MC Curve becomes Short run supply curve
  - - - Produce differentiated products
        
        Attributes
        
        Service
        
        Location
        
        Brand names and packaging
        
        Some control over price
      - Widespread nonprice competition
        
        Heavy Advertising
      - Entry and exit is relatively easy
        
        Economies of scale are few and capital requirements are low
      - Some control over price but within narrow limits
      - Large number of seller
        
        25,30,60,70
      - Monopolistic competitive industries
        
        Four-firm concentration ratio
        
        The ratio of output of four largest in industry relative to total industry output
        
        Herfindal index
        
        Some of squared % market shares of all firms in industry
        
        Lower index means likelihood that is monopolistically competitive rather than oligopolistic
    - - Frims demand curve
        
        Highly but not perfectly elastic
        
        Demand is more elastic than pure monopolist
        
        Because of many competitors producing substitutable goods
        
        Price elasticity of demand
        
        Number of sellers
        
        Larger number the weaker the product differentiation
        
        Greater price elasticity of demand of each seller
        
        Degree of product differentiation
        
        Short run; Profit or loss
        
        Produce where MR=MC
        
        Economic profit
        
        P=(P-A)Q
        
        Long run
        
        Firms
        
        Enter a profitable monopolistically competitive industry or leave a non profitable one
        
        Profits firms enter
        
        Losses firms leave
        
        only a normal profit in long run
        
        Complications
        
        Sufficient product differentiation
        
        Best location
        
        1 more item...
        
        Well-known brand name
        
        1 more item...
        
        Entry is not as free as in theory
        
        Financial barriers are likely to be greater with product differentiation
        
        1 more item...
        
        Only a normal profit
    - - Productive efficiency
        
        Neither is achieved in the long run
        
        Produce where P= Minimum ATC
      - Allocative efficiency
        
        Short run is where P=MC
      - Excess Capacity
        
        Gap between minimum ATC and Profit Max point
        
        Many SMAll motels and restaurants that operate below half capacity
      - economic efficiency
        
        P=MC=MinimumATC
  - - - Limited by mutual interdependence; considerable with collusion over price control
  - - - Multiply price with quantity sold
        
        TR=P X Q
    - - AR=TR/Q
    - - Decide to change output
      - MR=△TR/△Q
        
        Change in total revenue that result from selling one more unit of output