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
2.5.1.1. 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
3.3.1.1. price is less than AVC
3.3.2. long run
3.3.2.1. 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
4.3.1.1. uses retained profits of a company to finance expansion by increasing fixed and variable factors
4.3.2. external
4.3.2.1. horizontal integration
4.3.2.1.1. two businesses in the same industry at the same stage of production become one
4.3.2.2. vertical integration
4.3.2.2.1. same industry but at different stages of the supply chain
4.3.2.3. lateral
4.3.2.3.1. merger between companies that are related but not identical, e.g. newspapers and magazines
4.3.2.4. conglomerate
4.3.2.4.1. 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)
6.3.1.1. therapy
6.4. 2nd degree
6.4.1. batch/quantity
6.4.1.1. individual bags or multibags
6.5. 3rd degree
6.5.1. time/status
6.5.1.1. 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
7.2.4.1. 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
7.5.1.1. 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
8.2.2.1. 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
9.1.1.1. 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
9.4.2.1. 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
10.3.1.1. reducing barriers to entry
10.3.1.2. reducing concentration
10.3.1.3. increasing contestability
10.3.2. reinforcing monopoly power
10.3.2.1. firms patent their innovations
10.3.2.2. easier to expand production and reinforce dominance