Midterm 3 Topics

Midterm 3 Topics - Announcements Exam Wednesday (chs....

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Announcements Exam Wednesday (chs. 11-18) HW due tonight Office hours today 2-4 and Tues. 2-4pm or by appointment. Bring a calculator to the exam!!
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Overview of Topics Ch 15 – Antitrust Ch 11 – Input markets (general) Ch 12 – Labor markets Ch 13 – Capital markets Ch 14 – Structure of the firm and Imperfect Information Ch 16 – Public goods and public choice Ch 17 – Externalities Ch 18 – Income inequality
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Antitrust Regulation of natural monopolies If set P=MC – firm loses money If set P=AC, firm earns zero economic profit – but not quite socially efficient FTC and DOJ monitor competitiveness in US industries Use HHI to determine whether a merger should be challenged (share 2 +share 2 +…) If under 1000 – never challenged, if over 1800, almost always challenged
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Input markets Land, Labor, Capital, Entrepreneurial skill Marginal productivity Production technology (minimize costs) Law of diminishing returns (in the short run). Hire input until MP per dollar is the same for al inputs A A K K L L P MP P MP P MP = =
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Input markets (ch11-12) Demand for labor (derived) Marginal productivity Marginal revenue product (MRP=MP*P x ) Hire input until the MRP of the input=price of the input. (P=MRP) “Economic rent” = value of the input above and beyond its opportunity cost. A A K K L L P MP P MP P MP = =
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Households Supply Inputs Households supply labor, land, and capital Market Labor vs. non-market labor vs. leisure – cost of leisure is the wage rate. Labor supply curve. – backward bending
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Midterm 3 Topics - Announcements Exam Wednesday (chs....

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