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Under Imperfect Competition downward-sloping demand curve o if a firm increases its sales, it will definitely depress the market price of its output as it moves down its dd demand curve. emand is finite elasticity
MONOPOLY
&hen a large number of sellers produce differentiated products. Products sold by different firms are not identical
Differentiated products ones whose important characteristics vary. #hole price of a $ood
Includes not 'ust its dollar price but also the opportunity cost of
search, travel time and other non-dollar cost. See page 169 OU%C" O& M'%("! IMP"%&"C!ION
Industries tend to have fewer sellers when there are significant economies of large-scale production and decreasing cost Markets tend toward imperfect competition when there are #barriers to entry$ that make it difficult for new competitors to enter an industry o (arriers may arise from government laws and regulations o "conomic factors
If there are economies of scale, a firm can decrease its average costs by expanding its output, at least up to a point That means bigger firms will have cost advantage over smaller
#network industries$
*'%%I"% !O "N!%Y ,egal -estrictions o Patents, entry restrictions and foreign-trade tariffs and .uotas. /igh 0ost of "ntry !dvertising and Product ifferentiation
Mar$inal %e+en)e
0alculated by subtracting the total revenues of ad'acent outputs 1egative M- means that in order to sell additional units, the firm
must decrease its price on earlier units so much that its total revenues decline. ote! "ven though #$ is negative, %verage $evenue or Price is still Positive. P 2 '% 2 M% , P 3 Lost re+en)e on all pre+io)s 1 #arginal $evenue is positive when demand is elastic, &ero when demand is unit'elastic, and negative when demand is
inelastic. Demand is elastic when a price decrease leads to a revenue increase !O!'L P%O&I! , !O!'L %"4"NU" 3 !O!'L CO ! , 5P - 16 3 !C #aximum Profit will occur when output is at that level where the firm(s marginal revenue is e)ual to its marginal cost.* +hen #$ , #Perfect Competition 2. *he sale of e+tra units will never depress price and the lost revenue on all previous . is therefore e.ual to zero. a. Price 3 !verage -evenue 3 Marginal -evenue 4. M- 3 P 3 M0 at the ma+imum-profit level of output Mar$inal Principle People will ma+imize their incomes or profits or satisfactions by counting only the marginal costs and marginal benefits of a decision. $ead .ummary