MID-TERM REVIEW Spring, 2014

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1. MID-TERM REVIEW Spring, 2014
2. 2.3 THEORY OF THE FIRMINTRODUCTIONFirmsMNC-TNCIndustryTotal profit = TR - TC
3. 2.3 THEORY OF THE FIRMPRODUCTION FUNCTIONOutput as
4. 2.3 THEORY OF THE FIRMLAW OF DIMINISHING
5. 2.3 THEORY OF THE FIRMLAW OF DIMINISHING
6. 2.3 THEORY OF THE FIRMSHORT RUN COSTSFixed
7. 2.3 THEORY OF THE FIRMAVERAGE VARIABLE COSTSGRAPH
8. 2.3 THEORY OF THE FIRMPROFITEconomic profit: TR
9. 2.3 THEORY OF THE FIRMPROFIT MAXIMIZING EQUILIBRIUMMR
10. 2.3 THEORY OF THE FIRMLONG RUN OUTPUT
11. 2.3 THEORY OF THE FIRMLONG RUN OUTPUT
12. 2.3 MARKET STRUCTUREMARKET POWERThe way a firm
13. 2.3 MARKET STRUCTUREIMPERFECT COMPETITIONMonopolistic CompetitionOligopoly – Prisoner’s DilemmaPERFECT COMPETITIONMONOPOLY
14. 2.3 MARKET STRUCTUREPERFECT COMPETITIONAssumptionsGraphMarket vs. FirmThe Firm’s
15. 2.3 MARKET STRUCTUREEFFICIENCY AND OPTIMAL ALLOCATIONA pure
16. 2.3 MARKET STRUCTUREMONOPOLYAssumptionsGraphMonopoly and Supernormal ProfitsGraph
17. 2.3 MARKET STRUCTURECOMPETITION VS. MONOPOLYWhen no economies
18. 2.3 MARKET STRUCTUREOLIGOPOLYCollusive OligopolyNon-Collusive OligopolyKinked Demand Curve – GRAPH
19. 2.3 MARKET STRUCTURETHEORY OF CONTESTABLE MARKETSIt argues
20. 2.3 MARKET STRUCTUREMONOPOLISTIC COMPETITIONAssumptionsGRAPH
21. 2.3 MARKET STRUCTUREPRICE DISCRIMINATIONUnits of a product
22. 2.3 MARKET STRUCTUREPRICE DISCRIMINATIONReasons for Price DiscriminationNecessary conditions for Price DiscriminationGRAPHTotal revenue and Price Discrimination
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2.3 THEORY OF THE FIRMINTRODUCTIONFirmsMNC-TNCIndustryTotal profit = TR - TC

Слайды и текст этой презентации

Слайд 1MID-TERM REVIEW Spring, 2014
PAGES 121-180

Слайд 22.3 THEORY OF THE FIRM
INTRODUCTION
Firms
MNC-TNC
Industry

Total profit = TR - TC

Слайд 32.3 THEORY OF THE FIRM
PRODUCTION FUNCTION
Output as a function of

inputs

SHORT RUN AND LONG RUN COSTS
SR: Time period where at

least one factor of production is fixed
LR: All inputs can be changed

2.3 THEORY OF THE FIRMPRODUCTION FUNCTIONOutput as a function of inputsSHORT RUN AND LONG RUN COSTSSR: Time

Слайд 42.3 THEORY OF THE FIRM
LAW OF DIMINISHING RETURNS
If some inputs

are increased whilst at least one other input remains fixed

then, whilst the extra output produced by each extra unit of input may at first increase it will reach a point where it will diminish
Example: Clear the dinner table

2.3 THEORY OF THE FIRMLAW OF DIMINISHING RETURNSIf some inputs are increased whilst at least one other

Слайд 52.3 THEORY OF THE FIRM
LAW OF DIMINISHING RETURNS
Point of diminishing

marginal returns – the marginal output of each extra worker

decreases as each worker has less and less input to work with effectively
Average Output and Marginal Output-GRAPH
Law of Diminishing returns only in the short run

2.3 THEORY OF THE FIRMLAW OF DIMINISHING RETURNSPoint of diminishing marginal returns – the marginal output of

Слайд 62.3 THEORY OF THE FIRM
SHORT RUN COSTS
Fixed and variable costs
TC

= FC + VC
AVERAGE COSTS AND MARGINAL COSTS
ATC = AFC

+ AVC
MC = TCn – TCn-1

2.3 THEORY OF THE FIRMSHORT RUN COSTSFixed and variable costsTC = FC + VCAVERAGE COSTS AND MARGINAL

Слайд 72.3 THEORY OF THE FIRM
AVERAGE VARIABLE COSTS
GRAPH – Law of

Diminishing Returns
GRAPH – MP, AP, MC, AVC (p. 130)

REVENUE
TR =

p x q

2.3 THEORY OF THE FIRMAVERAGE VARIABLE COSTSGRAPH – Law of Diminishing ReturnsGRAPH – MP, AP, MC, AVC

Слайд 82.3 THEORY OF THE FIRM
PROFIT
Economic profit: TR – TC
Accounting Profit:

TR – Accounting Costs
Accounting Costs: Money value costs (raw materials,

energy, rent, interest and wages)
Normal profit: profit needed to cover opportunity cost
Super normal (abnormal) profit: extra profit

2.3 THEORY OF THE FIRMPROFITEconomic profit: TR – TCAccounting Profit: TR – Accounting CostsAccounting Costs: Money value

Слайд 92.3 THEORY OF THE FIRM
PROFIT MAXIMIZING EQUILIBRIUM
MR = MC (level

of output, q)
Quantity to be produced
MR > MC, expand output
MR

< MC, contract output

2.3 THEORY OF THE FIRMPROFIT MAXIMIZING EQUILIBRIUMMR = MC (level of output, q)Quantity to be producedMR >

Слайд 102.3 THEORY OF THE FIRM
LONG RUN OUTPUT – RETURNS TO

SCALE (Graph)
Increasing returns to scale
Input increases, output increases more than

proportionately
Constant returns to scale
Input increases, output increases proportionately
Decreasing returns to scale
Input increases, output increases less than proportionately

2.3 THEORY OF THE FIRMLONG RUN OUTPUT – RETURNS TO SCALE (Graph)Increasing returns to scaleInput increases, output

Слайд 112.3 THEORY OF THE FIRM
LONG RUN OUTPUT – RETURNS TO

SCALE
Sources of Increasing Returns to Scale
Technical Economies
Managerial Economies
Purchasing Economies
Marketing Economies
Financial

Economies

Слайд 122.3 MARKET STRUCTURE
MARKET POWER
The way a firm behaves, that is,

how much output it decides to produce and the price

it sells the product at, depends on the market structure of that product
The main characteristic of market structure is the degree of competition in the market

2.3 MARKET STRUCTUREMARKET POWERThe way a firm behaves, that is, how much output it decides to produce

Слайд 132.3 MARKET STRUCTURE
IMPERFECT COMPETITION
Monopolistic Competition
Oligopoly – Prisoner’s Dilemma

PERFECT COMPETITION
MONOPOLY

Слайд 142.3 MARKET STRUCTURE
PERFECT COMPETITION
Assumptions
Graph
Market vs. Firm
The Firm’s Supply Curve –

GRAPH

Break-Even Price – SR producing at a loss (below ATC)
Shut-Down

Point – Firm will close down (MR = MC = AVC)

2.3 MARKET STRUCTUREPERFECT COMPETITIONAssumptionsGraphMarket vs. FirmThe Firm’s Supply Curve – GRAPHBreak-Even Price – SR producing at a

Слайд 152.3 MARKET STRUCTURE
EFFICIENCY AND OPTIMAL ALLOCATION
A pure market system is

likely to be both technically and allocatively efficient
Technical or Productive

Efficiency: output is produced with the minimum amount of inputs (ATC at min.)
Allocative Efficiency: suppliers are producing the optimal mix of goods/services required by consumers (P = MC / AR = MC)

2.3 MARKET STRUCTUREEFFICIENCY AND OPTIMAL ALLOCATIONA pure market system is likely to be both technically and allocatively

Слайд 162.3 MARKET STRUCTURE
MONOPOLY
Assumptions
Graph
Monopoly and Supernormal Profits
Graph

Слайд 172.3 MARKET STRUCTURE
COMPETITION VS. MONOPOLY
When no economies of scale are

gained
Perfect competition industry is taken over by a monopoly
Prices are

higher, quantities are lower and resource allocation is non-optimal
When economies of scale are gained
Consumer is better off under monopoly
Prices are lower, quantities are greater but resource allocation is non-optimal

2.3 MARKET STRUCTURECOMPETITION VS. MONOPOLYWhen no economies of scale are gainedPerfect competition industry is taken over by

Слайд 182.3 MARKET STRUCTURE
OLIGOPOLY
Collusive Oligopoly
Non-Collusive Oligopoly

Kinked Demand Curve – GRAPH

Слайд 192.3 MARKET STRUCTURE
THEORY OF CONTESTABLE MARKETS
It argues that it is

the threat of competition rather than actual competition which determines

a firm’s price and output

Exit Costs

2.3 MARKET STRUCTURETHEORY OF CONTESTABLE MARKETSIt argues that it is the threat of competition rather than actual

Слайд 202.3 MARKET STRUCTURE
MONOPOLISTIC COMPETITION
Assumptions
GRAPH

Слайд 212.3 MARKET STRUCTURE
PRICE DISCRIMINATION
Units of a product which cost the

same to produce are sold at different prices to different

consumers

PRICE DISCRIMINATION
Different prices are charged because there are different costs of production

2.3 MARKET STRUCTUREPRICE DISCRIMINATIONUnits of a product which cost the same to produce are sold at different

Слайд 222.3 MARKET STRUCTURE
PRICE DISCRIMINATION
Reasons for Price Discrimination
Necessary conditions for Price

Discrimination
GRAPH
Total revenue and Price Discrimination

2.3 MARKET STRUCTUREPRICE DISCRIMINATIONReasons for Price DiscriminationNecessary conditions for Price DiscriminationGRAPHTotal revenue and Price Discrimination

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MID-TERM REVIEW Spring, 2014

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Слайд 1MID-TERM REVIEW Spring, 2014PAGES 121-180

Слайд 22.3 THEORY OF THE FIRMINTRODUCTIONFirmsMNC-TNCIndustryTotal profit = TR - TC

Слайд 32.3 THEORY OF THE FIRMPRODUCTION FUNCTIONOutput as a function of

inputsSHORT RUN AND LONG RUN COSTSSR: Time period where at

Слайд 42.3 THEORY OF THE FIRMLAW OF DIMINISHING RETURNSIf some inputs

are increased whilst at least one other input remains fixed

Слайд 52.3 THEORY OF THE FIRMLAW OF DIMINISHING RETURNSPoint of diminishing

marginal returns – the marginal output of each extra worker

Слайд 62.3 THEORY OF THE FIRMSHORT RUN COSTSFixed and variable costsTC

= FC + VCAVERAGE COSTS AND MARGINAL COSTSATC = AFC

Слайд 72.3 THEORY OF THE FIRMAVERAGE VARIABLE COSTSGRAPH – Law of

Diminishing ReturnsGRAPH – MP, AP, MC, AVC (p. 130)REVENUETR =

Слайд 82.3 THEORY OF THE FIRMPROFITEconomic profit: TR – TCAccounting Profit:

TR – Accounting CostsAccounting Costs: Money value costs (raw materials,

Слайд 92.3 THEORY OF THE FIRMPROFIT MAXIMIZING EQUILIBRIUMMR = MC (level

of output, q)Quantity to be producedMR > MC, expand outputMR

Слайд 102.3 THEORY OF THE FIRMLONG RUN OUTPUT – RETURNS TO

SCALE (Graph)Increasing returns to scaleInput increases, output increases more than

Слайд 112.3 THEORY OF THE FIRMLONG RUN OUTPUT – RETURNS TO

SCALESources of Increasing Returns to ScaleTechnical EconomiesManagerial EconomiesPurchasing EconomiesMarketing EconomiesFinancial

Слайд 122.3 MARKET STRUCTUREMARKET POWERThe way a firm behaves, that is,

how much output it decides to produce and the price

Слайд 132.3 MARKET STRUCTUREIMPERFECT COMPETITIONMonopolistic CompetitionOligopoly – Prisoner’s DilemmaPERFECT COMPETITIONMONOPOLY

Слайд 142.3 MARKET STRUCTUREPERFECT COMPETITIONAssumptionsGraphMarket vs. FirmThe Firm’s Supply Curve –

GRAPHBreak-Even Price – SR producing at a loss (below ATC)Shut-Down

Слайд 152.3 MARKET STRUCTUREEFFICIENCY AND OPTIMAL ALLOCATIONA pure market system is

likely to be both technically and allocatively efficientTechnical or Productive

Слайд 162.3 MARKET STRUCTUREMONOPOLYAssumptionsGraphMonopoly and Supernormal ProfitsGraph

Слайд 172.3 MARKET STRUCTURECOMPETITION VS. MONOPOLYWhen no economies of scale are

gainedPerfect competition industry is taken over by a monopolyPrices are

Слайд 182.3 MARKET STRUCTUREOLIGOPOLYCollusive OligopolyNon-Collusive OligopolyKinked Demand Curve – GRAPH

Слайд 192.3 MARKET STRUCTURETHEORY OF CONTESTABLE MARKETSIt argues that it is