Always operate in the short run, never make a profit in the long run.
MC @ ATC
MR = MC Line
The output, most Profitable
Iindustry that has many firms selling a diffferentiated product.
When a seller charges 2 or more prices for the same good or service.
(Price - ATC) X Output
TC / Ouput
TR - TR
Price X Output
ATC Curve (Minimum Point)
The output at which the firm would produce most efficiently.
Perfect Competitor Making a Profit:
Demand line is above ATC curve.
TC - TC
Why there is no distinction between the short run and the long run for the monopolist?
Monopolist is the only firm
Produce differentiated products. Make a profit or take a lost in the short run, in the long run the firm will break even. (MOST number of firms.)
Produce all the output in an industry. No distinction in the long or short run.
Perfect Competitor Characteristics:
Produce identical products.
An industry with just a few sellers.
Inefficient, higher prices and a lower output, always make a profit, (MOST sales.)
Herfindahl-Hirschman Index (HHI)
The HHI is the sum of the squares of the market shares (ex. 30% sq = 900%) of each firm in the industry.
The total percentage share of industry sales of the 4 leading firms. Add the top 4 companies.
A combination of firms that acts as if it were a monopoly. Most extreme case of oligopoly
Operates like the alleged Mafia. Region division of the market among the firms in the industry.
Playing follow the leader (One company raises prices and shortly after, the other companies in the same market do the same)
Keeps the price just where it is to maximize profit.
Product Differentation Takes Place Where?
Mind of the consumer.
The Basis for Product Differentiation:
Physical differences, Convenience
Ambience,Reputations, Appeals to vanity, Unconscious fears and desires.
Snob appeal, Customized products
Concentration Ratios Shortcomings:
No imports -- tell us nothing about the competitive structure on the rest of the industry.
Natural Monopoly (local phone or electric company)
A situation where one firm is able to provide a service at a lower cost than could several competing firms.
Economies of Scale
Justify bigness because sometimes only a firm with the capability of very large output can produce anywhere close to the minimum point of its ATC