Get Started. It's Free
or sign up with your email address
Rocket clouds
Econ 3 by Mind Map: Econ 3

1. Costs and Revenues

1.1. Fixed costs

1.2. Variable costs

1.3. Total costs

1.3.1. TC=FC+VC

1.4. Average costs

1.4.1. AC=TC/Q

1.4.1.1. or alternatively AC=AFC+AVC

1.5. The short run

1.6. Law of diminishing returns

1.7. Average product (output per worker)

1.8. Division of labour

1.8.1. increasing returns to labour

1.9. Rise in productivity = fall in cost per unit

1.10. Economies of scale

1.10.1. technical

1.10.2. purchasing

1.10.3. financial

1.10.4. administrative

1.11. Diseconomies of scale

1.11.1. control

1.11.2. co-ordination

1.11.3. co-operation

1.12. Minimum efficient scale

1.12.1. lowest average costs

1.13. Revenue

1.13.1. TR=P*Q

1.13.2. AR=TR/Q=P

1.13.3. P=AR

1.13.4. marginal revenue

2. Profit Maximisation

2.1. Normal profit

2.1.1. AC=AR

2.2. Supernormal profit

2.2.1. anything in excess of NP

2.2.1.1. MC=MR

2.3. Functions of profit

2.3.1. allocation of factors of production

2.3.2. signal for market entry

2.3.3. promotes innovation

2.3.4. investment

2.3.5. reward for risk

2.3.6. indicates economic performance

2.4. Alternative goals

2.4.1. mangerial status

2.4.2. market share

2.4.3. sales growth

2.4.4. revenue maximisation

3. Perfect Competition

3.1. based on several assumptions

3.1.1. Many buyers and sellers

3.1.2. No barriers to entry/exit

3.1.3. Identical products

3.1.4. Perfect information

3.1.5. No externalities

3.1.6. No economies of scale

3.2. The competitive process

3.2.1. scare resources

3.2.1.1. prices formed by SS and DD

3.2.1.1.1. profits/losses emerge

3.3. Shutdown condition

3.3.1. short run

3.3.1.1. Price<AVC

3.3.2. long run

3.3.2.1. Price<AC

3.4. Reality

3.4.1. imperfect information

3.4.2. advertising

3.4.3. externalities

3.4.4. quality,brand,location,design,customer service,range,choice

4. Efficiency

4.1. Consumer surplus

4.2. Producer surplus

4.3. Static efficiency

4.3.1. allocative

4.3.1.1. P=MC

4.3.1.1.1. goods produced in line with consumer preference

4.3.2. pruductive

4.3.2.1. lowest point of AC curve

4.3.3. x

4.3.3.1. firm not on AC curve

4.3.3.1.1. (monopoly)

4.4. dynamic efficiency

4.4.1. product

4.4.1.1. quality and design of product

4.4.2. process

4.4.2.1. cost structure

4.4.2.2. balance of factor inputs

4.4.2.3. efficient use of resources

4.5. dead weight loss

4.5.1. welfare loss associated with monopoly power

5. Concentrated Markets

5.1. Why firms expand

5.1.1. market power

5.1.2. objectives of managers

5.1.3. profit motive

5.1.4. economies of scale

5.1.5. risk motive

5.2. Internal growth

5.2.1. increasing fixed or variable factors

5.2.2. innovation and creativity

5.2.3. increased geographic coverage

5.2.4. normally slow growth

5.3. External growth

5.3.1. mergers/integration

5.3.1.1. horizontal

5.3.1.2. vertical

5.3.1.3. lateral

5.3.1.4. conglomerate

5.4. Outsourcing

5.4.1. technological change

5.4.2. increased competition

5.4.3. pressure from the financial markets

6. Price Discrimination

6.1. Conditions

6.1.1. difference PED

6.1.2. barriers to stop market seepage

6.2. First degree

6.2.1. unique price for everyone

6.3. Second degree

6.3.1. quantity

6.3.1.1. buying a batch

6.4. Third degree

6.4.1. Time

6.4.2. Status

6.4.3. Location

6.5. Consequeneces

6.5.1. consumer surplus decreases

6.5.2. P > MC

6.5.3. lower income consumers may be 'priced into the market"

6.5.4. extractingconsumer surplus and making supernormal profit

7. Monopoly

7.1. <24% of market share

7.2. the number and closeness of substitutes

7.3. barriers to entry

7.3.1. high fixed costs

7.3.2. economies of scale

7.3.3. brand loyalty

7.3.4. legal barriers

7.3.5. control over the factors of production

7.3.6. predatory pricing

7.3.7. strategic barriers

7.3.7.1. hostile takeovers

7.3.7.2. product differentiation

7.3.7.3. brand proliferation

7.3.7.4. capacity expansion

7.3.7.5. predatory pricing

7.4. first mover advantage

7.4.1. estabolish

7.5. degree of product differentiation

7.6. price maker

7.6.1. can not charge a price that consumers in the market will not bear

7.7. profit maximisation

7.7.1. Marginal costs=marginal revenues

7.8. efficiency

7.8.1. allocatively inefficient

7.8.1.1. P > MC

7.8.2. productively inefficient

7.8.2.1. not at lowest point of AC curve

7.8.3. X inefficient

7.8.3.1. no competition

7.8.4. dynamically efficient

7.8.4.1. supernormal profits reinvested

7.8.4.1.1. R and D

7.9. reduced consumer surplus

7.9.1. deadweight welfare loss

7.9.2. social cost of monopoly

8. Oligopoly

8.1. Few producers

8.1.1. top five firms in the market account for more than 60% of total market demand/sales.

8.2. strategic interdependance

8.3. interdependance and uncertainty

8.3.1. price changes estabolished by dominant firm

8.3.1.1. tacit collusion

8.4. entry barriers

8.5. product branding

8.6. non price competition

8.6.1. better quality of service

8.6.2. longer opening hours

8.6.3. discounts on product upgrades

8.6.4. contractual relationships with suppliers

8.6.5. an increased range of services

8.6.6. advertising and loyalty cards

8.7. kinked demand curve

8.7.1. elasticity above and below the kink

8.7.1.1. price rigidity

8.8. explicit collusion

8.8.1. joint profit maximisation

8.8.2. exert some control over market supply

8.8.3. easier to achieve when

8.8.3.1. small number of firms in the industry

8.8.3.2. market demand is not too variable

8.8.3.3. demand is fairly price inelastic

8.8.3.4. each firm's output can be easily monitored

8.8.4. often fail because

8.8.4.1. enforcement problems

8.8.4.2. falling market demand

8.8.4.3. successful entry of non cartel films into the industry

8.8.4.4. exposure of illegal price fixing by market regulators

8.9. benefits from collusion

8.9.1. joint R and D projects

8.9.2. shared use of common facilities and the beneficial exchange of info

8.9.3. the adoption of common standards

8.10. game theory and prisoners dilema

9. New node