Maximizing Profit: Chapter 9: Weekly Revenue and Cost Data for a Gold Miner. Marginal Revenue:

Transcription

1 Chpter : Mximizing rofit: rofit = Totl Revenue - Totl Cost Mrginl Revenue: It mesures the hnge in totl revenue generted y one dditionl unit of goods or servies. Totl Revenue (TR) = Averge Revenue (AR) = TR = = ΔTR = Δ Revenue nd Cost t for Gold Miner rie of Gold = $6 / oz Output TR TC rofit Output TR TC rofit = Output

2 Fig. A 6 6 Fig. C Fig. B n m

3 Chpter : Indentifying Mrkets nd Mrket Struture Chrteristis of erfet Competition: Numerous smll firms nd ustomers. Firms hve insignifint mrket shre. Homogeneity of rodut. Firms produe perfet sustitutes. Freedom of Entry nd Exit. erfet Informtion. emnd Fing Typil Firm in erfet Competition Fig. A Industry A representtive Firm S = Norml rofit: The entrepreneur s opportunity ost. It is eul to or greter thn the mximum inome n entrepreneur ould hve reeived employing his or her resoures elsewhere. Norml rofit is inluded in the firm s osts. Eonomi rofit: rofit tht n entrepreneur mkes over the Norml rofit. = =, t = Totl Expliit Cost =, Opportunity Cost =, Eonomi rofit = TR -TC TR = x = () =, Eonomi rofit = TR TC =, -, -, =, Aounting rofit =, TC = Totl (Eonomi) Cost =Expliit Cost + Impliit Cost

4 Exerises: Exerises: 6 Long Run Euilirium under erfet Competition S S * * * * Industry Representtive Firm Monopoly: This is sitution where single produer (firm) is the sole produer of good tht hs no lose sustitutes. Soures of Monopoly: The firm my ontrol the entire supply of rw mterils reuired to produe tht output. The firm my hve ptent or opyright. The se of Nturl Monopoly Nturl Monopoly. Eonomies of Sle my permit only one firm to e effiient in the mrket.

5 Nturl Monopoly Soures of Monopoly: The firm my ontrol the entire supply of rw mterils reuired to produe tht output... The firm my hve ptent or opyright. The se of Nturl Monopoly. Eonomies of Sle my permit only one firm to e effiient in the mrket. The se of Government Frnhises. Through Mergers nd Auisitions. Chrteristis of Monopoly: A single seller: A single firm produes ll industry output. The monopoly is the industry. rie TR = ()=6 AR == TR = ()= AR == = TR -TR =-6= Entry into the industry is totlly loked. Imperfet dissemintion of informtion: Cost, prie, nd produt ulity informtion re withheld from uninformed uyers. or AR untity rie = untity $

6 rie rie m n untity untity Find the rofit mximizing output from the following informtion. emnd Informtion TR -- Cost Informtion TC -- 6 rofit = TR TC = = Monopolisti Competition: It is form of mrket orgniztion in whih there re mny sellers of heterogeneous or differentited produt, nd entry into nd exit from the industry re rther esy in the long run. ifferentited rodut: roduts whih re similr ut not identil nd stisfy the sme si need. Chrteristis: The Mrket Struture Spetrum Lrge numer of uyers nd sellers. rodut Heterogeneity. Free Entry nd Exit. erfet dissemintion of informtion. 6 6

7 The emnd Curve for Co-Col: Col: Before nd After Sustitutes Apper on the Mrket rie e = - e = - e = -. r s untity rie The Effet of Advertising on the Firm s s emnd Curve untity Oligopoly: This is form of mrket orgniztion in whih there re few sellers of homogeneous or differentited produt. Unlike the other forms of mrket struture tht we hve disussed, firm in Oligopoly mkes priing nd mrketing deision in light of the expeted response y rivls. Chrteristis of Oligopoly: Few Sellers: A hndful of firms produe the ulk of industry output. Homogeneous or uniue produt: If produt is homogeneous, then we hve ure Oligopoly. If produt is differentited, then we hve ifferentited Oligopoly. Blokded Entry nd Exit: Firms re hevily restrited from entering the industry. Imperfet issemintion of Informtion:

8 Wht re some exmples of Oligopoly? Automoiles Steel Soup Cerels Gsoline Mesure of Mrket Conentrtion: Firm Conentrtion Rtios: This is the perentge of totl industry sles of the lrgest firms in the industry. Firm A = % Firm = % Firm G = % Firm J = % Firm B = % Firm E = % Firm C = 6% Firm F = % Firm H = % Firm I = % Wht is n exmple of high onentrtion rtio? Out of firms in the irrft industry the leding onstitutes % of totl sles Wht is the Herfindhl- Hirshmn Index (HHI)? A mesure of industry onentrtion, lulted s the sum of the sures of the mrket shres held y eh firm in the industry The Herfindhl-Hirshmn Hirshmn Index: HHI = S + S + S + S +... Firm A = % Firm = % Firm G = % Firm B = % Firm E = % Firm C = 6% Firm F = % Firm H = %Firm I = % Firm J = % HHI = HHI = = In this se, < HHI <, Wht is Blned Oligopoly? An oligopoly in whih the sles of the leding firms re distriuted firly evenly mong them Wht is n Unlned Oligopoly? An oligopoly in whih the sles of the leding firms re distriuted unevenly mong them

9 Blned nd Unlned Oligopoly Conentrting the Conentrtion: Horizontl Mergers A merger etween firms produing the sme good in the sme industry Vertil Mergers A merger etween firms tht hve supplier - purhser reltionship Conglomerte Mergers A merger etween firms in unrelted industries Wht is Collusion? The prtie of firms to negotite prie nd mrket deisions tht limit ompetition Wht is Crtel? A group of firms tht ollude to limit ompetition in mrket y negotiting nd epting greedupon prie nd mrket shres How do firms in n unlned Oligopoly set prie? Most often they prtie prie ledership Wht is rie Ledership? rie Ledership: rie, F A firm whose prie deisions re titly epted nd followed y other firms in the industry L untity L F

10 Imgine identil firms, A, B, nd C in n industry. Wht hppens If A rises prie? B nd C will not rise their pries Imgine identil firms in n industry A, B, C wht hppens If A lowers prie? B nd C will lower their pries The Kinked emnd Curve Model: rie The Kinked emnd Curve Model: rie untity untity rie rie untity untity

11 Brnd Multiplition: Vritions of essentilly one good tht firm produes to inrese its mrket shre. Firm s s Mrket Shre = (Numer of Brnds) x (Brnd s s Mrket Shre) rie isrimintion : The prtie of offering speifi good or servie t different pries to different segments of the mrket. Centrlized Crtels: