ARE 100b - ARE 100b Zach Charles Molly ambramson Susan and...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
ARE 100b Zach Charles Molly ambramson Susan and her friends Jason lai Mackenzie Stats guy brian I think… Lisa tran Heather 100b friend 1. Perfect Competition i. Assume: No firm is big enough to affect to market b. i. Assume: Homogeneous product 1. don’t care who you sell to or which you buy ii. Assume: full information 1. everyone has equal knowledge iii. Assume: free entry and exit in the long run 1. if SR price is higher than ATC, so more firms will enter and dilute the profits from existing firms iv. Assume: no transaction costs 1. doesn’t cost to learn about prices v. Assume: no externalities aka cost or benefit of transaction to a third party. c. When these factors are not present = market failure 2. “Perfect competition is a benchmark”
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
a. In general equilibrium perfect competition maximizes social welfare b. w/o perfect competition and a market failure, social welfare is down. Doesn’t mean that someone isn’t better off, aka a particular company can benefit. i. However, there are not many perfectly competitive markets in the real world. 3. Ex. CH 8 # 33 is an example of perfect competition w/answer in the back of the book. Violations of Perfect competition 4. Market Power a. Def: The market failure where one or more sellers and/or buyers is larger enough to influence the market price. b. 5. Monopoly- one seller a. Whatever it does affects the price i. If they want to sell more units, when demand goes down, the price goes down on all units sold, not just on the marginal units.
Background image of page 2
ii. iii. MUST charge same price to everyone. You sell more units but loose money on each unit. There CAN be price discrimination, but we’ll cover that later. 6. MR- marginal revenue , is the additional revenue from an additional unit combined with a reduction in revenue from lowering the price from all other or existing units. Aka you lost money all everything else so it affects how muc you get for each unit as you produce it. i. EX. 1 1. P= 100-5Q 2. TR = P * Q a. TR = (100- 5Q) Q b. TR = 100Q – 5Q^2 i. Take derivative for MR c. MR = 100 – 10Q i. On graph, MR is ALWAYS half of D aka the MR is twice as steep.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
3. 7. Own price elasticity of demand a. Def: the change in the quantity demanded as a function of the change in price. Aka how much is demanded as the price goes up or down. This is related to MR formula i. MR = P(1 +1/elasticity) ii. Elasticity is negative, MR is always less than the price iii. Page 364 is the math behind the formula. b. At every point in the demand curve, there is a different elasticity, even if the demand curve is constant c. For EX 1 i. Q: 8, 5 ii. P: 60, 75 iii. MR: 20, 50 iv. E : -1.5, -3 1. Can find MR from these numbers. d. NOTE: we only focus on linear demand curves 8. How does monopoly take advantage of its position in the market? a.
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 69

ARE 100b - ARE 100b Zach Charles Molly ambramson Susan and...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online