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Micro by Mind Map: Micro

1. Concentrated markets

1.1. Concentration ratio= value of output from the 5 largest firms/ value of output for the industry

1.2. Why do firms grow larger?

1.2.1. Market power motive

1.2.2. Objectives of managers

1.2.3. Profit motive

1.2.4. Economies of scale

1.3. How do firms grow larger?

1.3.1. Internal growth, reinvest profits in to product development or buying up smaller business e.g microsoft

1.3.2. External growth, Mergers Horizontal,vertical,lateral and conglomerate

1.3.3. Outsourcing

2. Price discrimination

2.1. Conditions

2.1.1. at least two different groups with different price elasticity of demand

2.1.2. Barriers to prevent market seepage. ( you are not able to re sale the good once it is brought)

2.2. types

2.2.1. First degree (perfect) Unique

2.2.2. Second degree, batch(multi pack crisps)

2.2.3. Third degree (multi market,age location)

2.3. Consequences

2.3.1. There is a loss of consumer surplus

2.3.2. Price charged is well above the marginal cost of production

2.3.3. Consumer surplus is turned into supernormal profit.

2.3.4. Can improve dynamic efficiently improving social welfarre

3. Monopoly

3.1. Barriers to entry

3.1.1. High fixed costs

3.1.2. Economies of scale

3.1.3. brand loyalty

3.1.4. Legal barriers

3.1.5. Control over production

3.1.6. Predatory pricing

3.1.7. Control over retail outlets

3.1.8. Strategic entry deterrence Hostile takeovers Product differentiation

3.2. Monopoly and efficiency

3.2.1. Likely to be x efficient due to managerial slack. and allocatively as P greater than MC inefficient due to lack of competition

3.3. The costs and benefits of monpoly

3.3.1. Can earn supernormal profits

3.3.2. Can lead to market failure

3.3.3. Benefit from economies of scale and lower average costs

3.3.4. Can reach MES

3.3.5. Maybe dynamically efficient due to high supernormal profits being reinvested into R&D

3.4. A monopoly is market in which there is only one supplier

4. Oligopoly

4.1. An oligopoly is defined as a market dominated by a few producers, each of which has a degree of control in the market so the industry is likely to have a high level of market concentration

4.2. Conduct and behaviour:

4.2.1. Interdependence

4.2.2. Entry barries

4.2.3. Product branding

4.2.4. Non-price competition

4.3. Kink demand curve

4.3.1. Firms in an oligopoly are likely to protect and maintain their market share and that rival firms are unlikely to match a price rise but will match a price fall

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. Contractual relationships with suppliers agreements

4.4.5. An increased range of services

4.4.6. Advertising and loyalty cards

4.5. Price leadership, Tacit collusion and price fixing:

4.5.1. Prices and price changes can be established by a dominant firm

4.6. Game theory

4.6.1. Prisoners dilemma

5. Market structure and technology

5.1. Summary

5.1.1. The number of firms

5.1.2. Market share of the largest firm

5.1.3. Nature of costs

5.1.4. Degree to which the industry is vertically intergrated

5.1.5. The extent of product differentiation

5.1.6. structure of buyers in the industry

5.1.7. turnover of customers

5.2. Impact of technology

5.2.1. Shifts AC out

5.2.2. changes methods of production to optimal methods

5.2.3. Increases dynamically efficiency

5.2.4. Promote competition by reducing barriers to entry

6. Profit Maximiation

6.1. Maximising profit

6.1.1. MC=MR is he profit maximising condition Normal profit is the level of profit which is just sufficient to keep all the factors of production in there present use. AC=AR Supernormal profit is positive economic profit

6.2. The role of profit in an economy

6.2.1. To allocate factors of production

6.2.2. Signal for market entry

6.2.3. Promotes innovation

6.2.4. Investment

6.2.5. Rewards entrepreneurship

6.2.6. Economic perfomance indicator

6.3. Alternative goals

6.3.1. Market share

6.3.2. Brand loyalty

6.3.3. Managerial status

6.3.4. Revenue maximisation

7. Cost and Revenues

7.1. Fixed and variable costs.

7.1.1. fixed costs are costs that a business has irrespective of output.

7.1.2. Variable costs change with respect to the level of output

7.1.3. TC =FC + VC

7.2. Average cost

7.2.1. AC=TC/Quantity

7.3. Average fixed costs

7.3.1. AVC falls rapidly as production increase as fixed cost are diluted as production increase

7.4. Law of diminishing returns

7.4.1. A decreases in marginal cost per unit output as one factor of production is increased while others factors remain fixed.

7.5. Short run/Long run

7.5.1. Short run is the period of time where at least one factor of production stays fixed. Long run is the time period in which all factors of production have been changed.

7.6. Economies and diseconomies of scale

7.6.1. Internal Economies of scale occur when a firm experiences falling long run average costs

7.6.2. External Economies of scale occur wen a firm has falling long run average cost due to a growth in the whole industry.

7.7. Minimum Efficient scale

7.7.1. the minimum point on the average cost curve

7.8. Marginal Total and average revenue

7.8.1. TR = PxQ

7.8.2. AR =TR/Q

7.8.3. MR= the addition to total revenue from the sale of one extra unit of output

8. Perfect Competition

8.1. Short run

8.1.1. Firm can operate with supernormal profits in the short term

8.1.2. Shut down condition is when the price is less than the firms AVC

8.2. Long run

8.2.1. Shut down condition when price is less than AC firms should leave the industy

8.3. Benefits of competition

8.3.1. Lower prices

8.3.2. Low barriers to entry

8.3.3. Lower total profits

8.3.4. Economic efficiency

8.3.5. Greater entrepreneurial activity

8.4. Perfect competition is where every firm in the market is a price taker and where the output of one firm has no effect on the total output of the market. Each individual firm has a perfectly elastic demand curve.

8.4.1. Many buyers and sellers

8.4.2. No barriers to entry

8.4.3. identical products

8.4.4. Perfect information

8.4.5. No externalities

8.4.6. No economies of scale

9. Efficiency

9.1. Consumer and producer surplus

9.1.1. Consumer: The difference between the price which the consumer would be happy to buy and the price they actually buy

9.1.2. Producer:The difference between the price the producers are willing to supply and the market price

9.2. Allocative Productive and x Efficiency

9.2.1. Allocative: when goods are produced in line with consumer preferences P=mc

9.2.2. Productive: Lowest point on the AC (MES)

9.2.3. When a firm is above the SRAC due to operational slck

9.3. Dynamic efficiency

9.3.1. Product improvement of goods and services

9.3.2. Process improvement of how the product is produced

9.4. Government policy and dynamic efficiency

9.4.1. Tax credits

9.4.2. Policies to encourage business creation

9.4.3. Lower corp tax

9.4.4. Reduce barriers to entry

9.4.5. Increase university funding on research

10. Contestable markets

10.1. Performance and conduct of business

10.1.1. Downward pressure on prices

10.1.2. The threat of new entry to the market keep prices low

10.1.3. lower profit margins

10.2. If the market is perfectly contestable there are no sunk costs

10.3. The increasing contestability of markets

10.3.1. Entrepreneurial Zeal

10.3.2. De-regulation of markets

10.3.3. Competition policy

10.3.4. The European single market

10.3.5. Technological Change