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ЕСОN3 by Mind Map: ЕСОN3

1. Costs and revenues

1.1. Fixed and variable costs

1.1.1. Fixed costs

1.1.2. Variable costs

1.2. The SRAC curve

1.2.1. Short run

1.2.2. The law of diminishing returns Average product Average variable product Division of labour

1.3. The LRAC curve

1.3.1. Economies of scale Technicla Purchasing Financial Administrative

1.3.2. Diseconomies of scale Factors Control Co-ordination Co-operation

1.3.3. Economies of scope

1.4. The Minimum Efficient Scale

1.4.1. Exhausted economies of scale

1.5. External Economies and Diseconomies

1.5.1. Clusters Cheap raw materials Labour market (special skills) Shared factors of production Exchange of ideas

1.6. Total, average and marginal revenue

2. Efficiency

2.1. Consumer and produser surplus

2.1.1. Consumer surplus

2.1.2. Producer surplus

2.2. Static efficiency

2.2.1. X efficiency Not on AC curve- monompoly

2.2.2. Economic efficiency Allocative efficiency P=MC Productive efficiency MES

2.3. Dynamic efficiency

2.3.1. R and D Product inovation Process inovation

2.3.2. Technological change

2.3.3. Increased physical capital

2.3.4. Increased human capital through education and training

3. Concentrated Markets

3.1. Why do firms grow large?

3.1.1. Market power Price discrimination Increasing pricing power

3.1.2. Objectives of managers

3.1.3. Profit motive Escape the take-over Maintain high share value

3.1.4. Risk motive Diversification of production Economies of scope

3.2. How do firms grow larger?

3.2.1. Internal growth

3.2.2. External growth Horizontal (same industry, same stage) integration Vertical integration (different stages of the supply chain) Lateral merger (related but not identical) Conglomerate merger (unrelated)

3.3. Outsourcing

3.3.1. Technological change

3.3.2. Increased competition

3.3.3. Pressure from the financial markets

4. Oligopoly

4.1. Definition

4.1.1. Few producers

4.1.2. Consenration ratio of top 5 is more than 60%

4.1.3. Interdependence

4.2. Conduct and behaviour

4.2.1. Product branding

4.2.2. Non-price competition

4.2.3. Entry barriers

4.2.4. Interdependence and uncertainty

4.3. Kinked demand

4.3.1. Elastic above equilibrium

4.3.2. inelastic beneath equilibrium

4.4. Importance of non-price competition

4.4.1. Better quality of service

4.4.2. Longer opening hours

4.4.3. Discounts on product upgrades

4.4.4. An increased range of services

4.4.5. Advertising and loyalty cards

4.5. Price leadership and tacit collusion

4.5.1. Price fixing

4.5.2. Cartel agreements Enforcement problems Cheating Falling market demand Entry of non-cartel firms into the industry The wxposure of illegal price fixing by market regulators

4.5.3. Benefits from collusion Joint R and D projects Joint use of facilities Adoption of common standards

5. Contestable markets

5.1. No barriers

5.1.1. To entry

5.1.2. To exit

5.1.3. + access to the same technology

5.2. Costs of entry/ exit are 0

5.3. Downward pressure on prices

5.4. The increasing contestability of markets

5.4.1. Risks New technology New strategy

5.4.2. De-regulation of markets

5.4.3. Competition policy Against price fixing cartels Against predatory behaviour

5.4.4. The European Single Market

5.4.5. Technological change e- commerce

6. Perfect Competition

6.1. Free market

6.1.1. Many buyers and sellers

6.1.2. No barriers to entry

6.1.3. Identical products

6.1.4. Perfect information

6.1.5. No externalities

6.1.6. No economies of scale

6.1.7. Prcetakers

6.2. Benefits of competition

6.2.1. Lower prices

6.2.2. Low barriers to entry

6.2.3. Lower total profits

6.2.4. Economic efficiency

6.2.5. Greater entrepreneurial activity

7. Profit Maximisation

7.1. Profit

7.1.1. Normal

7.1.2. Supernormal

7.2. Maximizing profit

7.2.1. MC=MR

7.3. The role of profit

7.3.1. Functions of profit Allocation of factors of production Signal for market entry High supernormal profit Promotes innovation Dynamic efficiency Investment Reward for bearing risk Performance indicator

7.4. Alternative goals

7.4.1. Traditional Profit maximisers Owners are managers

7.4.2. Managerial theory Maximisation of sales Or market share Principle agent problem Divorce between ownership and control

7.4.3. Behavioral theories Complex

8. Price Discrimination

8.1. Identical Product

8.1.1. Different buyers Different prices

8.2. Conditions

8.2.1. Differences in PED

8.2.2. Barriers to prevent "market seepage" MAC for students

8.3. Types

8.3.1. Ist degree Unique price Doctors

8.3.2. IInd degree Quantity Multi pack

8.3.3. IIIrd degree Time Train ticket Geography Drugs for Africa Status of consumer Students

9. Monopoly(25%+)

9.1. Barriers to entry

9.1.1. High fixed costs

9.1.2. Economies of scale

9.1.3. Brand loyalty

9.1.4. Legal barriers

9.1.5. Control over the factors of production

9.1.6. Control over retail outlets

9.1.7. Predatory pricing

9.2. Costs and benefits of monompoly

9.2.1. Costs Higher prices and lower output Allocative efficiency Underconsumption X inefficiency Productive inefficiency Reduced consumer surplus

9.2.2. Benefits Economies of scale Lower prices Potential to reach MES Dynamic efficiency from supernormal profits Scope to be internationally competitive

10. Market Structure and Technology

10.1. Most important featurs of market structure

10.1.1. The number of firms

10.1.2. The market share of the largest firms Concentration ratio

10.1.3. The nature of costs Variable Fixed Sunk Economies of scale

10.1.4. The degree to wich the industry is vertically integrated

10.1.5. The extent to product differentiation Cross PED

10.1.6. The structure of buyers in the industry

10.1.7. The turnover of customers How many are ready to change their suppplier over a given time period when market conditions change

10.2. Government intervenntion and inovation

10.3. Perfect competition

10.3.1. Price-taking firms have no influence over the ruling market price

10.3.2. Free entry and exit

10.3.3. Profits are driven towards normal

10.3.4. Homogenous products

10.3.5. Perfectly elastic curve

10.4. Pure monopoly

10.4.1. Supernormal profits

10.4.2. Entry barriers

10.4.3. Frequent use of price discrimination

10.5. Oligipoly

10.5.1. Few firms Each has some power

10.5.2. Branded products

10.5.3. Entry barriers

10.5.4. Interdependence

10.5.5. Strategy

10.5.6. Market share may be the objective, not profit maximisation

10.6. Contestable markets

10.6.1. Low entry- exit costs

10.6.2. Hit and Run Normal profits

10.6.3. Barriers may exist