Exam 3 Cheat Sheet avery.docx

Exam 3 Cheat Sheet avery.docx - CHAPTER 14 PRICE...

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CHAPTER 14- PRICE DISCRIMINATION - Price discrimination : selling same product at a diff price to diff customers in order to increase profit *monopolist chooses to price discriminate where MR=MC - Makes it easier for firms to cover their fixed costs Principles- 1a. If the demand curves are different, it is more profitable to set different prices in different markets than a single price that covers all markets. (The firm wants to price discriminate) 1b. To maximize profits the monopolist should set a higher price in markets with more inelastic demand 2. Arbitrage (buying low in one market and selling high in another) may make it difficult for a firm to set different prices in different markets, thereby reducing the profit from price discrimination. (The firm may not be able to price discriminate) - Perfect Price Discrimination : charge each buyer his/her max willingness to pay --no CS, all Gains from Trade (CS+PS) go to monopolist, no DWL, produces until P = MC = MR --- HARD to implement cuz you need detailed info on max willingness to pay -if PD increases output, then total surplus increases and reduces DWL - Tying: consumption of one good requires consumption of second good --price the base good below cost and variable good above cost (printer and cartridge) - Bundling: requires a good to be bought along with other goods s CHAPTER 15- OLIGOPOLY AND GAME THEORY -CompetitionMonopolistic competitionOligopolyMonopoly - Strategic Decision- Making = decision making in situations that are interactive and profits depend on other companies - Cartel: attempts to move a market from competitive to what would occur if it were controlled by a single monopoly (small # of producers) -set production quota for each member -if a player has dominant strategy , that is best move regardless of other player’s move – usually cheating - “Prisoner’s Dilemma”- negative counterpart to the invisible hand - Price matching: * Suppose competing firms offer to match lower prices and give customers 10% of the difference *If one sets price at $1000 and the other at $800, customers can buy from the higher- priced firm at $800 – (10% x 200) = $780 *A firm has no incentive to drop price because its competitor will get all the customers -cartels work best for commodities with limited geographic options for entry -manufacturing cartels break down in long run because other firms can enter -cartels will collapse because of cheating from other members, new entrants and demand response, and government regulation -more cheaters = less profit - Oligopoly: smaller # of firms with higher barriers to entry -firms can’t form cartels, but generally prices will be above competitive levels (P>MC) -firms innovate to produce a product with fewer substitutes -behavior of one firm will affect overall price -
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CHAPTER 18- LABOR MARKETS -The demand for labor and MPL (marginal product of labor ): --A firm is willing to hire a worker a worker when the worker increases the firm’s revenue to equal more than the firm’s costs - MPL: the increase in revenue created by hiring an additional worker
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