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Conditions of Pure Monopoly
Single Seller No Close Substitutes Price Maker Blocked Entry
Market Barriers to Entry
Economics of Scale- Certain number to enter Legal Barriers- copyright, licenses, pattens Essential Resources- control a certain resource you can control price Strategic Barriers- convincing your product is important
Productive Effieciency
The production of a good in the least costly way; occurs when production takes place at the output at which 'average total cost' is a minimum and 'marginal product' per dollar's worth of input is the same for all inputs
Allocative Efficiency
produce where p=mc
Dynamic Adjustments
Have ability to restore efficiency when disrupted by changes in economy.
Consumer Surplus
The difference between the price a consumer is willing to pay and the price actually paid
Price Discrimination
Charging a different price to a different customer
3 conditions needed for Price Discrimination
1. Market power (ability to set price) 2. Distinguishable Customers 3. Prevention of Resale EX: movie tickets, airline pricing, coupons, qty. discounts, financial aid for college
Natural Monopoly
Large economy of scale
Pure Competition
Many buyers and many sellers Standardized Product Price Takers Free entry and exit
Monopolistic Competition
Large number of firms Differentiation Product Some control over price Easy entry and exit
Oligopoly
Small number of sellers, each with large share of the market. Ex-Car companies
Total Revenue for Competitive
price X Quantity
Profit Maximization
MC=MR
Shut Down Rule
P<AVC
Cartels
Group of producers that coordinates its pricing and production decisions.
Obstacles to Collusion
Number of Firms Cheating Recession Illegal Price leader ship model
Importance of Resource Pricing
Determines income Determines where resource is used Cosy minimization needed to profit maximize ethical concerns
Derived Demand
what labor will bring Amount of goods what price
Marginal Revenue Product
amount you get for goods MRP=M X P
amount you get for goods MRP=M X P
Increase demand for product to increase union wage rates increase demand for goods they produce (lobbying) alter price of other inputs (higher min. wage for non union workers)
Exclusive craft Union model
Reduce number of members raise prices
Inclusive or Industrial Union Model
Unions that try and organize all available workers accept all workers, skilled, unskilled, semi skilled workers may impose wage rate, which can be above the competitive wage rate. This will lower the supply of jobs automobile and steel workers right to strike- steel industries
Compensation Differences
Compensating for job hazards
Market Imperfections
Lack of Information Geographical Mobility Unions and Gov. Interference Discrimination
Non-Competing Groups
Different markets don't compete
International Economy
Goods and Services flows Resource flows Information and technology flows Financial Flows
U.S and World Trade
Volume and Pattern Dependency Patterns Who we trade with Financial Linkages
Factors of Rapid Trade Growth
- transportation technology - communication technology - decline in tariffs
Absolute advantage
ability to produce more of a good vs competitors when using the same amount of resources
Comparative cost
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