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Microeconomics by Mind Map: Microeconomics
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Microeconomics

1. Costs and Revenues

Fixed and Variable Costs

Diminishing Returns

Marginal Product and Revenue

Economies of Scale

Minimum Efficient Scale

Total and Average Revenue

2. Profit Maximisation

Normal Profit

Supernormal Profit (abnormal profit)

Profit is maximised when MC = MR

Principal-Agent Problem

3. Perfect Comeptition

Assumptions:

Sunk costs

Short-run

Long-run

4. Efficieny

Consumer Surplus

Producer Surplus

Static

Dynamic

Allocative (static)

Productive (static)

X (static)

Product Innovation (dynamic)

Process Innovation (dynamic)

Perfect Comp.

Imperfect Comp.

5. Concentrated Markets

Concentration Ratio

Internal Growth

External Growth

6. Price Discrimination

Occurs when a producer seels an identical product to diff buyers at diff prices for reasons unrelated to costs.

Conditions

First Degree

Second Degree

Third Degree

Advantages

Disadvantages

7. Monopoly

There is only one firm in the industry.

Where a firm has greater than 25% of market share.

3 Factors to Assess Monopoly Power:

Barriers to Entry

Strategic Entry Deterrence

Efficieny

Costs

Benefits

8. Oligopoly

A market dominated by few producers, each have a degree of market control - high level of market conc.

Strategic interdependence.

Classic features:

Kinked demand curve.

Collusion.

9. Contestable Markets

Challenged the view that it was the number of firms that determined performance (behaviour and efficiency).

The threat of a new firm enetering the industry could provoke a monopoly to reduce its prices to a more competitive level if barriere to entry are low.

'Hit-and-run' threat.

A market is perfectly contestable when the costs of entry and exit by potential rivals are zero, and when such entry can be very rapid.

A pure monopoly prices where MC = MR (profit maximising but this is an idicator for firms to enter the market - potential for undercut.

10. Market Structure and Technology

Structure features:

The factors that determine the variety of prcicing decision open to a businesee are mainly:

Technology brings in new production techniques, therefore raising productivity and reducing average costs of production.

Technology also changes the optimal methods of production.

The decrease in costs will shift the supply curve to the right, decreasing prices for consumers (assuming the market is broadly competitive).

Techonology drives dynamic efficiency.