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Micro by Mind Map: Micro

1. Costs and Revenues

1.1. Fixed costs

1.1.1. Costs irrespective of output, e.g, rent, property taxes.

1.2. Variable costs

1.2.1. Costs that increase as production increases

1.3. Average cost

1.3.1. Total cost/Quatnity

1.4. Mrginal cost

1.4.1. The cost of producing one extra unit

1.5. The law of diminsihing returns

1.5.1. A decrease im marginal cost per unit output as one factor of production is increased while the other factors of production remain fixed

1.6. Short run

1.6.1. The period of time where at least one factor of production is fixed

1.7. Long run

1.7.1. The period of time where all factors are variable

1.8. Economies of scale

1.8.1. The average cost per unit decreases due to a firm expanding their scale of production

1.9. Minimum Efficient Scale

1.9.1. Is at the lowest point on the average cost curve where the firm achieves constant returns to scale

2. Profit Maximistation

2.1. Normal profit

2.1.1. The level of pf profit which is just sufficient to keep all of the factors of production in their present use

2.2. Supernormal profit

2.2.1. Anything above normal proft

2.3. Maximizing profit

2.3.1. MC=MR

2.4. Role of profit

2.4.1. allocation of factors of production

2.4.2. Signal for market entry

2.4.3. Promotes innovation

2.4.4. Investment

2.4.5. Rewards entrepreneurs for bearing risk

2.4.6. Economic performance indicator

2.5. Firms Goals

2.5.1. Maximizing profit MC=MR

2.5.2. Managerial Status

2.5.3. Market share

2.5.4. revenue maximization

3. Perfect Competition

3.1. Conditions:

3.1.1. Many buyers and sellers

3.1.2. No barriers to entry and exit

3.1.3. Identical Products

3.1.4. Perfect Competition

3.1.5. No externatlities

3.1.6. No economies of scale

3.2. Sunk costs

3.2.1. A cost that cant be recovered

3.3. shutdown condition

3.3.1. short run price is less than AVC

3.3.2. long run price is less than AC

3.4. competing factors

3.4.1. brand

3.4.2. product differentiaiton

3.4.3. location

3.4.4. price discrimination

3.5. Benefits

3.5.1. lower prices

3.5.2. Low barriers to entry

3.5.3. lower total profits

3.5.4. economic efficiency

4. Concentrated Markets

4.1. concentration ratio

4.1.1. value of output from the 5 largest firms/value of output for the industry

4.2. Why firms grow larger?

4.2.1. market power motive

4.2.2. objectives of managers

4.2.3. Profit motive

4.2.4. economies of scale

4.2.5. risk motive

4.3. growth

4.3.1. internal uses retained profits of a company to finance expansion by increasing fixed and variable factors

4.3.2. external horizontal integration two businesses in the same industry at the same stage of production become one vertical integration same industry but at different stages of the supply chain lateral merger between companies that are related but not identical, e.g. newspapers and magazines conglomerate merger between firms which are in unrelated business

5. Efficiency

5.1. Consumer and producer surplus

5.1.1. difference between the price the consumer is prepared to pay and the market price

5.1.2. the difference between the price the producer is prepared to sell at and the market price

5.2. dynamic efficiency

5.2.1. occurs over time

5.2.2. product: improvements in the good to make it perform at a higher quality

5.2.3. process:improvements in the method of production

5.3. allocative efficiency

5.3.1. goods are produced in line with consumer preferences. p=mc

5.4. Productive efficiency

5.4.1. occurs at the lowest point on the average cost curve

5.5. X inefficiency

5.5.1. when you are not producing on its average cost curve, organizational slack (monopoly)

6. Price Discrimination

6.1. occurs when a producer sells an identical product to different buyers at different prices for reasons unrelated to costs.

6.2. Conditions:

6.2.1. differences in price elasticity of demand

6.2.2. barriers to prevent market seepage

6.3. 1st degree

6.3.1. unique (haggling) therapy

6.4. 2nd degree

6.4.1. batch/quantity individual bags or multibags

6.5. 3rd degree

6.5.1. time/status train tickets

7. Monopoly

7.1. definition

7.1.1. only one firm that exists in that industry

7.1.2. where a firm has greater than 25% per cent market share

7.1.3. lack of competition means the demand is price inelastic and means the firm is the price maker in that industry

7.2. Barriers to entry

7.2.1. high fixed costs

7.2.2. economies of scale

7.2.3. brand loyalty

7.2.4. legal barriers patents

7.2.5. control over the factors of production

7.2.6. control over retail outlets

7.2.7. predatory pricing

7.3. efficiency

7.3.1. allocatively efficient

7.3.2. productively inefficient

7.3.3. x inefficient

7.4. costs

7.4.1. earn abnormal profits at the expense of efficiency and welfare of consumers

7.4.2. price is set above the average and marginal cost leading to market failure

7.4.3. can cause government intervention and failure

7.5. benefits

7.5.1. economies of scale higher output and lower price

7.6. natural monoploies

7.6.1. gas, electricity and water industries

8. Oligopoly

8.1. Definition

8.1.1. A market dominated by a few producers, each which has a degree of control in he market

8.1.2. Exists when the top five firms n the market account for more than 60% of total market demand/sales.

8.2. Features

8.2.1. interdependence and uncertainty

8.2.2. Entry barriers maintain supernormal profits

8.2.3. product branding

8.2.4. non price competition

8.3. Kinked demand curve

8.3.1. shows the likely reaction of other firms to a change in price.

8.4. collusion

8.4.1. Tacit

8.4.2. explicit

8.5. Game theory

8.5.1. prisoners dilemma

9. Contestable Markets

9.1. No barriers to entry and exit.

9.1.1. access to the same cost curves no sunk costs

9.2. produce at minimum costs

9.2.1. earn no excess profits

9.3. performance

9.3.1. downward pressure o price

9.3.2. consumer surplus

9.3.3. lower profit margins

9.4. Evaluate

9.4.1. no market perfect is contestability

9.4.2. strategic barriers to entry patents

9.5. Increasing contestability of markets

9.5.1. de-regulation of markets

9.5.2. competition policy

9.5.3. technological change

10. Market structure and technology

10.1. market structure featrues

10.1.1. number of firms

10.1.2. market share of largest firms

10.1.3. nature of costs

10.1.4. degree of vertical integration

10.1.5. product differentiation

10.1.6. structure of buyers in the industry

10.1.7. turnover of customers

10.2. Impact of technology on Firms

10.2.1. enhance both production and consumption

10.2.2. reducing average costs

10.2.3. job losses will emerge

10.2.4. increases in dynamic efficiency

10.2.5. New node

10.3. technology and competition

10.3.1. promote competition reducing barriers to entry reducing concentration increasing contestability

10.3.2. reinforcing monopoly power firms patent their innovations easier to expand production and reinforce dominance