1. Introduction. Economies of Scale, Imperfect Competition, and International Trade KOM, Chap 7 and 8
|
|
- Carmel Moore
- 6 years ago
- Views:
Transcription
1 Economies of Scale, Imperfect Competition, and International Trade KOM, Chap 7 and 8 Introduction and types of economies of scale External economies of scale and trade Monopolistic competition Monopolistic competition and trade Inter-industry trade and intra-industry trade 1. Introduction When defining comparative advantage, the Ricardian model and the Heckscher-Ohlin model both assume constant returns to scale: If all factors of production are doubled then output will also double. But a firm or industry may have increasing returns to scale or economies of scale: If all factors of production are doubled, then output will more than double. Larger is more efficient: the cost per unit of output falls as a firm or industry increases output. Mutually beneficial international trade can arise as a result of economies of scale. 1
2 Two sources of economies of scale: 1. External economies of scale occur when cost per unit of output depends on the size of the industry. External economies of scale may result if a larger industry allows for more efficient provision of services or equipment to firms in the industry. Many small firms that are competitive may comprise a large industry and benefit from services or equipment efficiently provided to the large group of firms. Agglomeration benefits: Watch industry in Switzerland, software industry in the Silicon Valley, the biotechnology industry around Boston, the banking industry in London or New York 2. Internal economies of scale occur when the cost per unit of output depends on the size of a firm. Internal economies of scale result when large firms have a cost advantage over small firms, which leads to an imperfectly competitive market. Toyota and the car industry, Dell and the computer industry, Boeing and the aircraft industry. Both types are important for international trade but they have different implications for market structures 2. External Economies of Scale Many modern examples of industries that seem to be powerful external economies: In the US, the semiconductor industry is concentrated in Silicon Valley, investment banking in NYC, and the entertainment industry in Hollywood. In developing countries such as China, external economies are pervasive in manufacturing. One town in China produces most of the world s underwear, another nearly all cigarette lighters. External economies played a key role in India s emergence as a major exporter of information services. Indian information services companies are still clustered in Bangalore. 2
3 For a variety of reasons, concentrating production of an industry in one or a few locations can reduce the industry s costs, even if the individual firms in the industry remain small. External economies may exist for a few reasons: 1. Specialized equipment or services may be needed for the industry, but are only supplied by other firms if the industry is large and concentrated. The Silicon Valley has a large concentration silicon chip companies; they are serviced by companies making special machines for producing silicon chips. These machines are cheaper/more easily available for Silicon Valley firms than for firms elsewhere. 2. Labor pooling: a large and concentrated industry may attract a pool of workers, reducing employee search and hiring costs for each firm. 3. Knowledge spillovers: workers from different firms may more easily share ideas that benefit each firm when a large and concentrated industry exists. External economies represented by decreasing average cost at the industry level. The supply curve is forward-falling: the larger the industry s output, the lower the price at which the firms are willing to sell. Prior to international trade, equilibrium prices and output for each country is at point 1. 3
4 What will happen when the countries open up the potential for trade in buttons when China has lower costs? The Chinese button industry will expand, while the U.S. button industry will contract. This process feeds on itself: As the Chinese industry s output rises, its costs will fall further; as the U.S. industry s output falls, its costs will rise. In the end, all button production will be concentrated in China. How does this concentration of production affect prices? Chinese button prices were lower than U.S. button prices before trade. Because China s supply curve is forward-falling, increased production as a result of trade leads to a button price that is lower than the price before trade. Trade leads to prices that are lower than the prices in either country before trade! Very different from the implications of models without increasing returns: the effect of trade is to reduce prices everywhere! 4
5 Examples: the watch industry; Silicon Valley (thanks to two graduate students named Hewlett and Packard) What might cause one country to have an initial advantage from having a lower price? One possibility is comparative advantage (technology and/or resource advantage). If external economies exist, however, the pattern of trade could be due to historical accidents. Countries that start as large producers in certain industries tend to remain large producers even if another country could potentially produce more cheaply. Even if Thai watchmakers could produce at lower unit cost than Switzerland, the Thai (or for that matter any other country) watch industry may not emerge if Switzerland has enough of a head start. No guarantee that the country with the lowest cost will produce a good that is subject to external economies. 5
6 It is possible that a country is worse off with trade than it would have been without trade: Suppose Thailand stops importing Swiss watches and builds an industry to satisfy Thai demand (D_Thai). It could get a lower price than by importing Swiss watches. Thus protecting the Thai market, reverting to autarky in watches can lead to a lower price of watches in Thailand than under free trade. However, cases like this are not easy to identify. Many countries have failed with this type of policy. For the world, it ii better to have concentrated production but not necessarily for a country. 3. Dynamic Increasing Returns So far, we have considered cases where external economies depend on the amount of current output at a point in time. But external economies may also depend on the amount of cumulative output over time. Dynamic increasing returns to scale exist if average costs fall as cumulative output over time rises. Dynamic increasing returns to scale imply dynamic external economies of scale. Dynamic increasing returns to scale could arise if the cost of production depends on the accumulation of knowledge and experience, which depend on the production process over time. A graphical representation of dynamic increasing returns to scale is called a learning curve. 6
7 Home country with cumulated output Q L has a lower unit cost (C 1 ) than Foreign country with no experience in that production even if production costs are lower in that country. This can also provide a head start to a country! Temporary protection of industries enabling them to gain experience is called an infant industry protection. Many attempts and many failures. These forces exist at the regional level and explain a lot of interregional specialization and trade. 4. Internal Economies Scale and Monopoly Internal economies of scale exist when large firms have a cost advantage over small firms, causing the industry to become noncompetitive. Internal economies of scale imply that a firm s average cost of production decreases the more output it produces. Perfect competition that drives the price of a good down to marginal cost would imply losses for those firms because they would not be able to recover the higher costs incurred from producing the initial units of output. As a result, perfect competition would force those firms out of the market. Internal economies of scale implies imperfect competition. 7
8 A monopoly is an industry with only one firm. An oligopoly is an industry with only a few firms. p p m MC( Q m The monopoly case: MR( P( Q Profit=P(Q-C( The monopoly maximizes its profit when increasing its production and sales no longer increases profit or when Δπ ΔP( ΔC( = P( + Q = 0 ΔQ ΔQ ΔQ or MR( = MC( ΔP( Because < 0, MR ( < P( ΔQ p p m MC( Profit AC( P( MR( Q m Q Average cost is the cost of production (C) divided by the total quantity of output produced ( at a time. AC = C/Q Marginal cost is the cost of producing an additional unit of output. Suppose that costs are measured by C = F + cq, where F represents fixed costs, independent of the level of output. c represents a constant marginal cost: the constant cost of producing an additional unit of output Q. AC = F/Q + c :A larger firm is more efficient because average cost decreases as Q increases: internal economies of scale. 8
9 Typically the case for large firms in the automobile, aircraft, or the computer industries. 5. Monopolistic Competition Monopolistic competition is an environment where 1. Each firm can differentiate its product from the product of competitors. 2. Each firm ignores the impact of a change in its own price has on their rivals prices: even though each firm faces competition it behaves as if it were a monopolist. A firm in a monopolistically competitive industry is expected: to sell more the larger the total sales of the industry and the higher the prices charged by its rivals. to sell less the larger the number of firms in the industry and the higher its own price. 9
10 This is captured by: 1 S Q = S b( P P) Q = + SbP SbP n n S or Q = A BP with A = + SbP and B = Sb n Q is an individual firm s sales S is the total sales of the industry n is the number of firms in the industry b is a constant term representing the responsiveness of a firm s sales to its price P is the price charged by the firm itself P is the average price charged by its competitors Simplification: All firms are alike so that P = P. It follows that, in equilibrium, Q = S/n AC = F/Q + c = F(n/S) + c The larger the number of firms n, the higher AC for each firm since Q falls. The larger the total sales S, the lower AC for each firm because Q rises. n AC = F + c Curve cc S The greater the number of firms in the industry, the higher the AC If each firm faces the linear demand S Q = [ + SbP] SbP n Each firm s marginal revenue is ΔP( MR( = P( + Q ΔQ MR( = P Q bs When firms maximize profits, they set MR(=MC( or P Q/bS = c Thus P = c + Q/Sb Since Q=S/n, 1 P = c + Curve PP nb The larger the number of firms n in the industry, the lower the price each firm charges because of increased competition. 10
11 At point E, The number of firms is such that each firm has zero profits: price matches average cost. No new firm wants to enter or to exit the market. If the number of firms is greater than or less than n 2, then in industry is not in equilibrium: firms have an incentive to exit or enter the industry. Firms have an incentive to enter the industry when profits are greater than zero (price > average cost). Firms have an incentive to exit the industry when profits are less than zero (price < average cost). Automobile industry when we look at the brand level, pop/rock music industry. 6. Monopolistic Competition and Trade Trade increases market size (S rises); hence it decreases AC in an industry described by monopolistic competition. CC: PP: Trade has two effects: n AC = F + c S 1 P = c + nb 1. It increases the number of firms/variety of goods (n rises) that consumers can buy 2. It decreases prices (p falls). Hence trade increases consumer s welfare. 11
12 Hypothetical example of gains from trade in an industry with monopolistic competition Domestic market before trade Foreign market before trade Integrated market after trade Industry sales 900,000 1,600,000 2,500,000 Number of firms Sales per firm 150, , ,000 Average cost 10,000 8,750 8,000 Price 10,000 8,750 8,000 But it is unclear whether firms will locate in the domestic or the foreign country. We cannot predict who is producing where and thus who is trading what! This is very different from the type of trade we had before as trade is not based on comparative advantage! Intra-industry trade refers to two-way exchanges of similar goods. Two new channels for welfare benefits from trade: Benefit from a greater variety at a lower price. Firms consolidate their production and take advantage of economies of scale. A smaller country stands to gain more from integration than a larger country. 12
13 About 25 50% of world trade is intra-industry. Most prominent is the trade of manufactured goods among advanced industrial nations, which accounts for the majority of world trade. 13
Chapter 6. Preview. Introduction. Economies of Scale, Imperfect Competition, and International Trade
Chapter 6 Economies of Scale, Imperfect Competition, and International Trade Slides prepared by Thomas Bishop Copyright 2009 Pearson Addison-Wesley. All rights reserved. Preview Types of economies of scale
More informationChapter 7 External Economies of Scale and the International Location of Production
Chapter 7 External Economies of Scale and the International Location of Production Copyright 2012 Pearson Education. All rights reserved. Preview Types of economies of scale Economies of scale and market
More informationExport Decisions, Outsourcing, and Multinational Enterprises. Global Economy: Firms in the. Chapter 8
Chapter 8 Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises Preview Monopolistic competition and trade The significance of intra-industry trade Firm responses to
More informationPrepared by Iordanis Petsas To Accompany. by Paul R. Krugman and Maurice Obstfeld
Chapter 6 Economies of Scale, Imperfect Competition, and International Trade Prepared by Iordanis Petsas To Accompany International Economics: Theory and Policy, Sixth Edition by Paul R. Krugman and Maurice
More informationAlternative Trade Theories!
Alternative Trade Theories! Chayun Tantivasadakarn! Faculty of Economics, Thammasat University! Chayun Tanti! 1! Outline! Intra-Industry Trade! The Imitation Lag Hypothesis and The Product Cycle Theory!
More informationChapter 8. Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises
Chapter 8 Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises Preview Monopolistic competition and trade The significance of intra-industry trade Firm responses to
More informationChapter 8 Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises
Chapter 8 Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises Copyright 2012 Pearson Education. All rights reserved. Preview Monopolistic competition and trade The
More informationPreview. Introduction. Chapter 8. Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises
Chapter 8 Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises Copyright 2015 Pearson Education, Inc. All rights reserved. 1-1 Preview Monopolistic competition and
More informationWhen economies of scale exist, large firms may be more efficient than small firms, and the industry may consist of a monopoly or a few large firms.
International Trade Theory College of International Studies University of Tsukuba Hisahiro Naito Monopolistic competition and trade The significance of intra-industry trade Firm responses to trade: winners,
More informationLesson22: Trade under Monopolistic Competition
International trade in the global economy 60 hours II Semester Luca Salvatici luca.salvatici@uniroma3.it Lesson22: Trade under Monopolistic Competition 1 Trade under Monopolistic Competition Assumptions
More informationIn Chapter 3 we pointed out that there are two reasons why countries
Economies of Scale, Imperfect Competition, and International Trade 6 Chapter In Chapter 3 we pointed out that there are two reasons why countries specialize and trade. First, countries differ either in
More information14.54 International Trade Lecture 17: Increasing Returns to Scale
14.54 International Trade Lecture 17: Increasing Returns to Scale 14.54 Week 11 Fall 2016 14.54 (Week 11) Increasing Returns Fall 2016 1 / 25 Today s Plan 1 2 Increasing Returns to Scale: General Discussion
More informationHandout 1: Monopolistic Competition and International Trade
Handout 1: Monopolistic Competition and International Trade Introduction to monopolistic competition There are two differences between our previous models (Ricardian, SF and H-O) and models with monopolistic
More informationUse the following to answer question 4:
Homework Chapter 11: Name: Due Date: Wednesday, December 4 at the beginning of class. Please mark your answers on a Scantron. It is late if your Scantron is not complete when I ask for it at 9:35. Get
More informationEconomies of Scale, Imperfect Competition and International Trade
Chapter 6 Economies of Scale, Imperfect Competition and International Trade 6.1 Introduction In the previous lectures, we have relied on comparative advantage to explain why countries trade. In the Ricardian
More informationChapter 8. Firms in the Global Economy
Chapter 8 Firms in the Global Economy Summary 1. Introduction International trade is an important economic activity 2. General equilibrium model There are welfare gains from trade whenever relative prices
More informationPractice Exam 3: S201 Walker Fall with answers to MC
Practice Exam 3: S201 Walker Fall 2007 - with answers to MC Print Your Name: I. Multiple Choice (3 points each) 1. If marginal utility is falling then A. total utility must be falling. B. marginal utility
More information2007 Thomson South-Western
Monopolistic Competition Characteristics: Many sellers Product differentiation Free entry and exit In the long run, profits are driven to zero Firms have some control over price What does the costs graph
More informationChapter 13. Microeconomics. Monopolistic Competition: The Competitive Model in a More Realistic Setting
Microeconomics Modified by: Yun Wang Florida International University Spring, 2018 1 Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Chapter Outline 13.1 Demand and
More informationTrade as an Engine of Growth From Ricardo to 21 st Century
Trade as an Engine of Growth From Ricardo to 21 st Century Enhancing the contribution of PTAs to inclusive and equitable trade: Islamic Republic of Iran 13-15 August 2017 Tehran Workshop outline Trade,
More informationEconomics 101 Spring 2014 International Trade. Problem Set 3. May 20, Horizontal Foreign Direct Investment
Economics 101 Spring 2014 International Trade Problem Set 3 May 20, 2014 Due: Instructor: E-mail: Thu, June 5, before 8:00am Marc-Andreas Muendler muendler@ucsd.edu 1 Horizontal Foreign Direct Investment
More informationThe homework is due on Wednesday, December 7 at 4pm. Each question is worth 0.8 points.
Homework 9: Econ500 Fall, 2016 The homework is due on Wednesday, December 7 at 4pm. Each question is worth 0.8 points. Question 1 Suppose that all firms in a competitive industry have cost function c(q)=
More information29/02/2016. Market structure II- Other types of imperfect competition. What Is Monopolistic Competition? OTHER TYPES OF IMPERFECT COMPETITION
Market structure II- Other types of imperfect competition OTHER TYPES OF IMPERFECT COMPETITION Characteristics of Monopolistic Competition Monopolistic competition is a market structure in which many firms
More informationCONTENTS. Introduction to the Series. 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply Elasticities 37
CONTENTS Introduction to the Series iv 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply 17 3 Elasticities 37 4 Government Intervention in Markets 44 5 Market Failure 53 6 Costs of
More informationReading Essentials and Study Guide
Lesson 1 Market Structures ESSENTIAL QUESTION How do varying market structures impact prices in a market economy? Reading HELPDESK Academic Vocabulary theoretical existing only in theory; not practical
More informationSlides and Images, Worth Publishers Inc. 8-1
Perfect Competition Michael J. Murray Slides and Images, Worth Publishers Inc. 8-1 Market Structure Analysis By observing a few industry characteristics, we can predict pricing and output behavior of the
More informationQuiz #5 Week 04/12/2009 to 04/18/2009
Quiz #5 Week 04/12/2009 to 04/18/2009 You have 30 minutes to answer the following 17 multiple choice questions. Record your answers in the bubble sheet. Your grade in this quiz will count for 1% of your
More information1. For a monopolist, present the standard diagram showing the following:
ECON 202: Principle of Microeconomics Name: Fall 2006 Bellas Second Midterm You have two hours and thirty minutes to complete this exam. Answer all questions, explain your answers, label axes and curves
More informationEco 300 Intermediate Micro
Eco 300 Intermediate Micro Instructor: Amalia Jerison Office Hours: T 12:00-1:00, Th 12:00-1:00, and by appointment BA 127A, aj4575@albany.edu A. Jerison (BA 127A) Eco 300 Spring 2010 1 / 61 Monopoly Market
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
PRACTICE FOR PERFECT COMPETITION Fatma Nur Karaman MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) What is the difference between perfect competition
More information1. For a monopolist, present the standard diagram showing the following:
ECON 202: Principle of Microeconomics Name: Fall 2005 Bellas Second Midterm - Answers You have two hours and twenty minutes to complete this exam. Answer all questions, explain your answers, label axes
More informationChapter 14 TRADITIONAL MODELS OF IMPERFECT COMPETITION. Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.
Chapter 14 TRADITIONAL MODELS OF IMPERFECT COMPETITION Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved. 1 Pricing Under Homogeneous Oligopoly We will assume that the
More informationPractice Test for Final
Name: Class: Date: Practice Test for Final True/False Indicate whether the statement is true or false. 1. A public good or service can be consumed by paying and nonpaying customers alike. 2. An example
More informationInternational Economics International Trade (Monopolies and trade Lecture 6)
University of Cassino Economics and Business Academic Year 2018/2019 International Economics International Trade (Monopolies and trade Lecture 6) Maurizio Pugno University of Cassino 1 Monopolistic competition
More informationNAME: 1. Please bring a calculator with you to the exam (well, I guess it s too late now).
NAME: International Trade Fall 2004 Prof. Rogers Instructions: Please read all questions very carefully. Exam Rules (in case you did not look at the Review Sheet): 1. Please bring a calculator with you
More informationMonopolistic Competition
16 Monopolistic Competition PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 Monopolistic Competition Imperfect competition Between perfect competition and monopoly Oligopoly
More informationIntroduction to Monopolistic Competition
Printed Page 659 Introduction to Monopolistic Competition How prices and profits are determined in monopolistic competition, both in the short run and in the long run How monopolistic competition can lead
More informationECONOMICS CHAPTER 9: FORMS OF MARKET
ECONOMICS CHAPTER 9: FORMS OF MARKET Class: XII(ISC) 2017-2018 Q1) Difference between Oligopoly and Monopolistic competition. Basis Oligopoly Monopolistic competition 1. Meaning It is that form of market
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
AUBG, Fall 2015, Principles Micro with P. Stankov, Sample MT2 NOTE: The actual no. of questions on the actual MT will be 30, each for 0.67 grade points. MULTIPLE CHOICE. Choose the one alternative that
More informationMonopoly and How It Arises
13 MONOPOLY Monopoly and How It Arises A monopoly is a market: That produces a good or service for which no close substitute exists If a good has a close substitute, even if it is produced by only one
More informationIntroduction to Industrial Organization Professor: Caixia Shen Fall 2014 Lecture Note 1
Part 1: Introduction to this course Introduction to Industrial Organization Professor: Caixia Shen Fall 2014 Lecture Note 1 1. What is Industrial Organization? Industrial organization is concerned with
More informationINTRODUCTION ECONOMIC PROFITS
INTRODUCTION This chapter addresses the following key questions: What are profits? What are the unique characteristics of competitive firms? How much output will a competitive firm produce? Chapter 7 THE
More informationA few firms Imperfect Competition Oligopoly. Figure 8.1: Market structures
8.1 Setup Monopoly is a single firm producing a particular commodity. It can affect the market by changing the quantity; via the (inverse) demand function p (q). The tradeoff: either sell a lot cheaply,
More informationVertical Mergers. The retailer has marginal cost of Pu+lOO where PU is the price per unit charged by the upstream manufacturer Grapefruit.
Vertical Mergers Suppose that Grapefruit Computers makes a unique product that is distributed exclusively by the retailer Better Buy. Both firms act as monopolists to maximize their profits. Consumers
More informationFINALTERM EXAMINATION FALL 2006
FINALTERM EXAMINATION FALL 2006 QUESTION NO: 1 (MARKS: 1) - PLEASE CHOOSE ONE Compared to the equilibrium price and quantity sold in a competitive market, a monopolist Will charge a price and sell a quantity.
More informationMonopolistic Competition. Chapter 17
Monopolistic Competition Chapter 17 The Four Types of Market Structure Number of Firms? Many firms One firm Few firms Differentiated products Type of Products? Identical products Monopoly Oligopoly Monopolistic
More informationMonopolistic Markets. Causes of Monopolies
Monopolistic Markets Causes of Monopolies The causes of monopolization Monoplositic resources Only one firm owns a resource which is crucial for production (e.g. diamond monopol of DeBeers). Monopols created
More informationInternational Economics dr Wioletta Nowak. Lecture 3-4
International Economics dr Wioletta Nowak Lecture 3-4 Trade with Economies of Scale Intra-Industry Trade Theory of Overlapping Demands (Linder, 1961) Product Life Cycle Theory (Vernon, 1966) Gravity Model
More informationPerfect Competition & Welfare
Perfect Competition & Welfare Outline Derive aggregate supply function Short and Long run euilibrium Practice problem Consumer and Producer Surplus Dead weight loss Practice problem Focus on profit maximizing
More informationThe Basic Spatial Model with a Single Monopolist
Economics 335 March 3, 999 Notes 8: Models of Spatial Competition I. Product differentiation A. Definition Products are said to be differentiated if consumers consider them to be imperfect substitutes.
More informationMicroeconomics. Use the Following Graph to Answer Question 3
More Tutorial at www.dumblittledoctor.com Microeconomics 1. To an economist, a good is scarce when: *a. the amount of the good available is less than the amount that people want when the good's price equals
More informationOligopoly and Monopolistic Competition
Oligopoly and Monopolistic Competition Introduction Managerial Problem Airbus and Boeing are the only two manufacturers of large commercial aircrafts. If only one receives a government subsidy, how can
More information4/3/12! Why do Americans get their Impalas from Canada? Classic American car.! 2008 Impala.!
Classic American car.! Why do Americans get their Impalas from Canada? Photo by Brett Weinstein, published under a Creative Commons license.! 2008 Impala.!! All Impalas are now made at Oshawa, Ontario.!
More informationECONOMICS SOLUTION BOOK 2ND PUC. Unit 6. I. Choose the correct answer (each question carries 1 mark)
Unit 6 I. Choose the correct answer (each question carries 1 mark) 1. A market structure which produces heterogenous products is called: a) Monopoly b) Monopolistic competition c) Perfect competition d)
More informationUnit 6 Perfect Competition and Monopoly - Practice Problems
Unit 6 Perfect Competition and Monopoly - Practice Problems Multiple Choice Identify the choice that best completes the statement or answers the question. 1. One characteristic of a perfectly competitive
More informationProblem Set 4 Eco 112, Fall 2011 Chapters covered: Ch. 8 and Ch. 9 (up to slide 15 Price Discrimination) Due date: October 20, 2011
Problem Set 4 Eco 112, Fall 2011 Chapters covered: Ch. 8 and Ch. 9 (up to slide 15 Price Discrimination) Due date: October 20, 2011 There are 30 multiple choice questions in this problem set. Answer these
More informationPractice Exam 3: S201 Walker Fall 2009
Practice Exam 3: S201 Walker Fall 2009 I. Multiple Choice (3 points each) 1. Which of the following statements about the short-run is false? A. The marginal product of labor may increase or decrease. B.
More informationMonopolistic Markets. Regulation
Monopolistic Markets Regulation Comparison of monopolistic and competitive equilibrium output The profits of a monopolist are maximized when MC(Q M ) = P(Q M ) + Q P (Q M ) negative In a competitive market:
More informationMonday, October 15: Monopoly and Marginal Revenue
Amherst College Department of Economics Economics 111 Fall 2012 Monday, October 15: Monopoly and Marginal Revenue 1. Run the Monopoly and Marginal Revenue simulation in our lab by clicking inside the red
More informationBS2243 Lecture 9 Advertisement. Spring 2012 (Dr. Sumon Bhaumik)
BS2243 Lecture 9 Advertisement Spring 2012 (Dr. Sumon Bhaumik) Why advertise? Building brands Creating markets for new products (scope economies) Price competition / Price protection Barrier to entry Product
More informationChapter 6: Market Structure
Managerial Economics and Organizational Architecture, 5e Chapter 6: Market Structure McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved. Market Structure What is a
More informationUnit 4: Imperfect Competition
Unit 4: Imperfect Competition 1 Monopoly 2 Characteristics of Monopolies 3 5 Characteristics of a Monopoly 1. Single Seller One Firm controls the vast majority of a market The Firm IS the Industry 2. Unique
More informationEastern Mediterranean University Faculty of Business and Economics Department of Economics Fall Semester
Eastern Mediterranean University Faculty of Business and Economics Department of Economics 2014 15 Fall Semester ECON101 Introduction to Economics I Final Exam Type A 26 January 2015 Duration: 100 minutes
More informationThree Rules and Four Models
Three Rules and Four Models Three Rules: How to find the profit maximizing quantity: A firm will maximize its profit (or minimize its losses) by producing that output at which marginal revenue and marginal
More informationThree Rules and Four Models
Three Rules and Four Models Three Rules: How to find the profit maximizing quantity: A firm will maximize its profit (or minimize its losses) by producing that output at which marginal revenue and marginal
More informationTextbook Media Press. CH 12 Taylor: Principles of Economics 3e 1
CH 12 Taylor: Principles of Economics 3e 1 Monopolistic Competition and Differentiated Products Monopolistic competition refers to a market where many firms sell differentiated products. Differentiated
More informationFinal Exam - Answers
Page 1 of 8 December 20, 2000 Answer all questions. Write your answers in a blue book. Be sure to look ahead and budget your time. Don t waste time on parts of questions that you can t answer. Leave space
More information4. A situation in which the number of competing firms is relatively small is known as A. Monopoly B. Oligopoly C. Monopsony D. Perfect competition
1. Demand is a function of A. Firm B. Cost C. Price D. Product 2. The kinked demand curve explains A. Demand flexibility B. Demand rigidity C. Price flexibility D. Price rigidity 3. Imperfect competition
More informationChapter Summary and Learning Objectives
CHAPTER 11 Firms in Perfectly Competitive Markets Chapter Summary and Learning Objectives 11.1 Perfectly Competitive Markets (pages 369 371) Explain what a perfectly competitive market is and why a perfect
More informationECON 200. Introduction to Microeconomics
ECON 200. Introduction to Microeconomics Homework 5 Part II Name: [Multiple Choice] 1. A firm is a natural monopoly if it exhibits the following as its output increases: (d) a. decreasing marginal revenue
More informationTextbook questions: Competitors and Competition
Competitors and Competition This chapter focuses on how market structure affects competition. It begins with a discussion of how to identify competitors, define markets, and describe the market structure.
More information14 MONOPOLY OVERVIEW. 2. In the short run, a monopolist may make economic profit, economic loss, or a normal profit.
14 MONOPOLY OVERVIEW 1. Barriers to entry prevent firms from entering a market when there are incentives for them to enter. Barriers to entry include natural monopoly, high fixed cost, advertising, and
More informationREDEEMER S UNIVERSITY
REDEEMER S UNIVERSITY Km 46/48 Lagos Ibadan Expressway, Redemption City, Ogun State COLLEGE OF MANAGEMENT SCIENCE DEPARTMENT OF ECONOMICS AND BUSINESS STUDIES COURSE CODE /TITLE ECO 202/Microeconomics
More informationCOMPETITION AND MARKETS BEFORE YOU BEGIN. Market Structures. Looking at the Chapter. Date Period. Chapter
COMPETITION AND MARKETS BEFORE YOU BEGIN Looking at the Fill in the blank spaces with the missing words. Market Structures Perfect Competition sellers product No barriers to entry Price taker Produce where
More informationECONOMICS FOR HEALTH POLICY SPECIAL FEATURES OF HEALTH CARE FROM COSTS OF PRODUCTION TO MARKET SUPPLY CURVES
ECONOMICS FOR HEALTH POLICY SPECIAL FEATURES OF HEALTH CARE FROM COSTS OF PRODUCTION TO MARKET SUPPLY CURVES 1 THE SIMPLEST CASE: ONLY ONE VARIABLE INPUT INTO PRODUCTION A FARMER S TOTAL, AVERAGE, AND
More informationMONOPOLY. Characteristics
OBJECTIVES Explain how managers should set price and output when they have market power With monopoly power, the firm s demand curve is the market demand curve. A monopolist is the only seller of a product
More informationExam #2 Time: 1h 15m Date: 10 July Instructor: Brian B. Young. Multiple Choice. 2 points each
Economics 212 Microeconomic Principles Exam #2 Time: 1h 15m Date: 10 July 2013 Name The value of this exam is 100 points. Instructor: Brian B. Young Please show your work where appropriate! Multiple Choice
More informationUnit 7. Firm behaviour and market structure: monopoly
Unit 7. Firm behaviour and market structure: monopoly Quiz 1. What of the following can be considered as the measure of a market power? A. ; B. ; C.. Answers A and B are both correct; E. All of the above
More informationOligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry s output.
Topic 8 Chapter 13 Oligopoly and Monopolistic Competition Econ 203 Topic 8 page 1 Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry
More informationEconomics Sixth Edition
N. Gregory Mankiw Principles of Economics Sixth Edition 16 Monopolistic Competition Premium PowerPoint Slides by Ron Cronovich In this chapter, look for the answers to these questions: What market structures
More informationPractice Exam 3: S201 Walker Fall 2004
Practice Exam 3: S201 Walker Fall 2004 I. Multiple Choice (3 points each) 1. Which of the following statements about the short-run is false? A. The marginal product of labor may increase or decrease. B.
More informationImperfect competition and intraindustry. Giovanni Marin Department of Economics, Society, Politics Università degli Studi di Urbino Carlo Bo
Imperfect competition and intraindustry trade Giovanni Marin Department of Economics, Society, Politics Università degli Studi di Urbino Carlo Bo References for this lecture BBGV Chapter 4, paragraphs
More informationINTERMEDIATE MICROECONOMICS LECTURE 13 - MONOPOLISTIC COMPETITION AND OLIGOPOLY. Monopolistic Competition
13-1 INTERMEDIATE MICROECONOMICS LECTURE 13 - MONOPOLISTIC COMPETITION AND OLIGOPOLY Monopolistic Competition Pure monopoly and perfect competition are rare in the real world. Most real-world industries
More informationFinal Term Examination Spring 2006 Time Allowed: 150 Minutes. Question No. 1 Marks :1. Question No.
www.vustuff.com WWW.VUTUBE.EDU.PK ECO402 Microeconomic s Final Term Examination Spring 2006 Time Allowed: 150 Minutes Question No. 1 Marks :1 Economies of scale and economies of scope are synonymous. Question
More informationUnit 4: Imperfect Competition
Unit 4: Imperfect Competition 1 Monopoly 2 Characteristics of Monopolies 3 5 Characteristics of a Monopoly 1. Single Seller One Firm controls the vast majority of a market The Firm IS the Industry 2. Unique
More informationPerfect Competition Chapter 8
Perfect Competition Chapter 8 A Perfectly Competitive Market A perfectly competitive market is one in which economic forces operate unimpeded. A Perfectly Competitive Market For a market to be perfectly
More information2) A production method that relies on large quantities of labor and smaller quantities of capital equipment is referred to as a: 2)
Micro: TA Session 4, Problem set MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The main difference between a short-run production function and
More informationa. Sells a product differentiated from that of its competitors d. produces at the minimum of average total cost in the long run
I. From Seminar Slides: 3, 4, 5, 6. 3. For each of the following characteristics, say whether it describes a perfectly competitive firm (PC), a monopolistically competitive firm (MC), both, or neither.
More informationECON 4550 (Fall 2011) Exam 1
ECON 455 (Fall 211) Exam 1 Name Multiple Choice Questions: (4 points each) 1. Jimmy is risk neutral. He is faced with a random payoff with expected value of $2,. Further, for this payoff the highest possible
More informationEconomics. Monopolistic Perfect Competition. Monopolistic Competition. Monopolistic Competition 11/29/2013. The Big Picture. Perfect Competition
16 Modified by Joseph Tao-yi Wang Ron Cronovich The Big Picture Chapter 13: The cost of production Now, we will look at firm s revenue But revenue depends on market structure 1. Competitive market (chapter
More informationEC2004: International Trade Revision Topics.
1. Basic concepts: absolute advantage; EC2004: International Trade Revision Topics. comparative advantage (CA); opportunity cost (OC); economies of scale (EOS); factor intensity; factor abundance. 2. Basic
More informationMarket Structure & Imperfect Competition
In the Name of God Sharif University of Technology Graduate School of Management and Economics Microeconomics (for MBA students) 44111 (1393-94 1 st term) - Group 2 Dr. S. Farshad Fatemi Market Structure
More informationMonopoly, Oligopoly, and Monopolistic Competition Chapter 8 McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Monopoly, Oligopoly, and Monopolistic Competition Chapter 8 McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives 1. Distinguish among three types
More informationTHE UNIVERSITY OF WESTERN ONTARIO. E. Rivers ECONOMICS 1021B-001 March 18, 2012 MIDTERM #2. 2. Check that your examination contains 50 questions.
NAME THE UNIVERSITY OF WESTERN ONTARIO LONDON CANADA E. Rivers ECONOMICS 1021B-001 March 18, 2012 MIDTERM #2 INSTRUCTIONS: 1. You will have 2 hours to complete the exam. 2. Check that your examination
More informationFigure 1 MC ATC. Demand. April 1, Exam 2
ECONOMICS 10-008 Exam 2 Dr. John Stewart April 1, 1999 Instructions: Mark the letter for your chosen answer for each question on the computer readable answer sheet. On the answer sheet make sure that you
More informationMICROECONOMICS - CLUTCH CH MONOPOLISTIC COMPETITION.
!! www.clutchprep.com CONCEPT: CHARACTERISTICS OF MONOPOLISTIC COMPETITION A market is in monopolistic competition when: Nature of Good: The goods for sale are, but not identical - Products are said to
More informationPricing with Market Power
Chapter 7 Pricing with Market Power 7.1 Motives and objectives Broadly The model of perfect competition is extreme (and hence wonderfully powerful and simple) because of its assumption that each firm believes
More informationUnit 4: Imperfect Competition
Unit 4: Imperfect Competition 1 FOUR MARKET STRUCTURES Perfect Competition Monopolistic Competition Oligopoly Pure Monopoly Imperfect Competition Every product is sold in a market that can be considered
More informationRecall from last time. Econ 410: Micro Theory. Cournot Equilibrium. The plan for today. Comparing Cournot, Stackelberg, and Bertrand Equilibria
Slide Slide 3 Recall from last time A Nash Equilibrium occurs when: Econ 40: Micro Theory Comparing Cournot, Stackelberg, and Bertrand Equilibria Monday, December 3 rd, 007 Each firm s action is a best
More informationChapter 6. Competition
Chapter 6 Competition Copyright 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 1-1 Chapter 6 The goal of this
More information