C211 Firm Behavior Under Different Market Structures
Terms in this set (15)
The increase in total cost that arises from an extra unit of production
Marginal Cost related to Total Cost
The portion of total cost resulting from an extra unit of production.
Marginal Cost Calculation
Change in total cost divided by change in quantity
Fixed and Variable
What are the two types of cost that make up total cost?
one who must accept the price as the market determines
Which of the market structures are characterized as being "price takers"?
When a market is characterized as being a price taker, what fundamental shape does the demand curve for this market take?
How is the demand curve for a perfectly competitive firm distinct from the demand curve for a monopolistic market?
"Downward Sloping" Demand Curve
The monopoly has to accept a lower price if it wants to sell more output.
Firms with Market Power Determine Quantity of Product/Service
A firm chooses a quantity of output such that marginal revenue equals marginal cost. The firm chooses quantity so that price equals marginal cost. Thus, the firm's marginal-cost curve is its supply curve.
What is the primary goal/objective of the firm?
Information about Marginal Costs and Revenues
If the firm has price setting capacity, how will they use information about marginal costs and marginal revenues in order to accomplish their primary objective? The monopolist's profit-maximizing quantity of output is determined by the intersection of the marginal-revenue curve and the marginal-cost curve.
Distinctions between Market Models
Monopoly and Oligopoly have one to few firms, with limited products (cable TV), entry is difficult, and advertising is a natural feature. Monopolistic competition/perfect competition have many firms, mono comp has differentiated products (novels/movies) and perfect comp has identical products, entry is easy, and spend very little on advertising.
Self-interest makes it difficult for the oligopolists to maintain the cooperative outcome. Relentless logic of self-interest drives the participants toward the non-cooperative outcome, which is worse for both parties.
Oligopolistic Firm Behaving like Monopoly
Forming a cartel and acting like a monopolist, but self-interest drives them towards competition.