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Microeconomics by Mind Map: Microeconomics
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Law of diminishing returns

Marginal product will start to fall after a certain point

Short run: immediate future, with 1 factor fixed

Marginal returns: returns when one unit of labour is added

Increasing returns to scale example

decreasing returns to scale example

A decrease in marginal cost per unit output as one factor of production is increased while other factors remain fixed

External economies of scale (clusters)


Definition: Benefits that arise in an industry due to clusters and are experienced by numerous firms.


Profit maximisation

Normal profit

Supernormal profit

The role of profit in the economy


Consumer surplus

Producer surplus

Static efficiency (occurs at a given point in time)

Dynamic efficiency (occurs over time)

Deadweight loss

Perfect competition

Sunk costs

The basic assumptions required for conditions of pure competition to exist are

The shutdown condition

Benefits of competitive markets

Concentrated markets

Concentration ratio

Reasons for firms growth

Internal growth

External growth


Price discrimination

Definition: Occurs when a producer sells a product to different buyers at different prices for reasons unrelated to costs.

conditions required for discriminatory pricing

First degree price discrimination

Second degree price discrimination

Third degree price descrimination


When a firm owns greater than 25% of market share.

Barriers to entry

Costs and Revenues

Fixed costs: costs that a business has irrespective of output

Variable costs: change with respect to the level of output

Total cost (TC) = Fixed cost (FC) + Variable cost (VC)

Average cost

Average fixed costs



Barriers to entry

Product branding

Non price competition

Kinked demand curve



Definition:Transfer of assets from the public sector to the private sector.

Benefits: Promotes efficiency, reduces costs, raises incentives, provides stock market discipline, promotes competition, promotes an enterprise culture, sale raises gov revenue, reduces the size of the public sector

Drawbacks: nationalized company price P=MC, private firms may ignore externalities, private firms may close loss making services, quality of provision may fall, safety standards may be compromised in pursuit of profit.

Use of regulators

Competition policy

Ways in which the competition authorities of national governments and EU seek to make markets work better and achieve higher economic efficiency and welfare.

effective price competition between suppliers

wider consumer choice

Technological innovation

Investigate anti-competitive


Anti competitive practices

Market Structure and Technology

Gains from technological improvements

Advances in technology can improve