3 Micro (Fach) / 1.Pricing in Perfectly Competitive Markets (Lektion)

Diese Lektion wurde von Janaw55 erstellt.

Lektion lernen

Diese Lektion ist leider nicht zum lernen freigegeben.

zurück  |  weiter 1 / 1

• 1.2 Shifts & Movements along Demand Curve Movements along the Demand Curve:  Tells us how quantity changes with respect to changes in price  Measure of sensitivity:  Price elasticity of demand %dX / %dP = dX/dP • P/X Shifts in the Demand Curve {Demand Shocks}:  Tells us how quantity changes with respect to changes in demand drivers other than price Measure of sensitivity: Income elasticity of demand %dX / %dY = dX/dY • Y/X
• 1.4 Perfect Competitive Markets Perfect Competitive Markets: Commodities, i.e. Aluminum Smelting is a Perfectly Competitive Market No market power Buyers and sellers are price takers  Sellers do not have the ability to set the price of the good Price is exogenous, firm chooses profit maximizing quantity Firm acts as if it can sell any quantity at the equilibrium price. Its MR is simply price Plausible when There are many small independent buyers & sellers The product is homogenous and of known quality There is perfect information about price Example: Walkers Crisps cost 70p in any store on Baker Street. Competitive markets are efficient, in the sense that they generate largest possible total surplus [and maximize Consumer and Producer Surplus]
• 1.2 Ambiguous Effect of 2 Shocks x Shocks in same direction: Q ↑ ambiguous effect on P
• 1.0 What is microeconomics? The studies of the behavior of consumers, managers, and other agents (governments) in the economy and their strategic interactions. Behavior: Optimal Decisions to achieve a stated goal Economy: Environment with limited resources Strategic interaction: Takes into account behaviors of customers, competitors, suppliers, etc. Good management is not only about marketing and operations but required understanding the logic of markets. Paul Krugman: "Economic theory is not a collection of dictums laid down by authority It is rather a collection of thought experiments intended to capture the logic of economic processes in a simplified way. All Ideas must be tested against the facts. But to know what facts are relevant, we must play with those ideas in a hypothetical setting  Advisedly play”: innovative thinkers often have a whimsical streak"
• 1.2 Demand Curve What Quantity will be demanded at different possible market prices? Represents the WTP of consumers in the economy Measure of sensitivity: Price elasticity of demand Top of the Demand Curve: Elastic Demand Price Elasticity changes along the Demand Curve
• 1.2 Factors affecting Price Elasticity of Demand Degree of Necessity: Commodities are inelastic Time period Availability of Substitutes: Urban Transit, Monopoly goods (i.e. government) Product - Market definition: Specific car > Automobile category 
• 1.1 Buyers WTP - Frequency WTP: The maximum amount someone would pay for a good Buyers want to buy a certain number of units Fixed WTP for each unit Different buyers might have different WTP Buyer’s surplus on unit = WTP for unit – price paid Collectively forms [ Frequency - Buyer Valuation] graph Wide Span: varying valuations (i.e. Marmite) Narrow Span: collective valuation (i.e. chocolate)
• 1.3 Short Run and Long Run Decisions Short-Run Market Supply Supply adjustments by active or near-active firms  -       Aggregation of supply curves of all price-taking firms that might potentially produce. -       [ Which firms have MC less than or equal to P?] P > MC [Max Cap] If market price this week exceeds MC, operate full capacity P < MC [ 0 ] Temporarily suspend operations Long-Run Market Supply Supply adjustments by capacity withdrawal and entry of new capacity] Exit:                All firms for which Equilibrium P < min Redeploy-ATC Entry:              All firms for which Equilibrium P > min FR-ATC
• 1.3. Types of Cost MC: extra cost of producing one more unit. Relevant cost for the decision about how to vary output in the short run. MC curve summarizes the rate at which variable costs change with output as the firm produces a little bit more or a little bit less output Min FR-TC = Full Reinvestment Total Cost = Total Cost + Unit Capital Charge [Entry Price for typical new firm]  Entry Price = PV of cash flows from operating the firm equals investment cost The marginal firm is exactly covering its ATC Min REDEPLOY-ATC = Exit Price for incumbent firm
• 1.4 Pricing in Perfect Competitive Markets Pricing in Perfect Competitive Markets: Prices are NOT controlled by any single firm The price of aluminum ingot is determined by 2 market forces: What buyers will pay for aluminum ingot What sellers will be prepared to sell it for We can think about the market as if Firms make selling decisions, taking the market price as given  -> market supply curve Buyers make purchase decision taking the market price as given -> market demand curve Equilibrium P is determined at the point at which Quantity demanded = Quantity supplied
• 1.3 Why may some firms never break-even in the short run? At some possible P (between firms MC and its ATC at full capacity), a firm will be willing to produce even though P does not cover its ATC A price-taking firm will be willing to supply a unit of output as long as P > MC of that unit The firm’s supply curve is its MC curve. - Firm produces at full capacity as long as the price covers its MC (equiv. AVC)- Firm might or might not cover its ATC (may operate even though price is below ATC)
• 1.3 Why is AVC = MC in the Short Run? If TC is linear, MC will be a horizontal line corresponding to the slope of the TC curve = Variable cost SR relationship between an individual firms TC and Volume ofpProduction is linear  VC vary in fixed proportion to the amount of output produced  MC  the rate at which TC (and TVC) change with output
• 1.2 Demand Shocks Greater Q demanded at the same price, greater WTP for the same Q Changes in Buyer Behaviour: Tastes - Seasonal changes  Weather - Umbrellas Campaigns - Greenpeace Fashion Trends - Atkins Diet  Research findings - Milk Expectations - Price drops (Apple announces new iPhone)Income - Normal Good (Double Consumption) / Inferior Good (McDonalds)Price of other goods: Supply Shock translated to a Demand Shock for SubstitutesPopulation: Birth rates
• 1.4 Short Run and Long Run Supply Curve Short Run:  P determined by supply adjustments by active or near-active firms Useful in predicting short run price movements Ignore fixed costs as they are sunk Long Run:  P determined by supply adjustments by capacity withdrawal and entry of new capacity Price won’t go up indefinitely Entry P for new firms will tend to cause P to remain in a certain span
• 1.4 Supply Shifters Changes in Costs Technological Innovations Input Prices Taxes and Subsidies Expectations Entry or Exit of Producers Changes in Opportunity Costs

zurück  |  weiter 1 / 1