Micro Chap. 9

Occur when the per unit costs of production decline as output increases.

Factors that make it hard for new firms to enter an industry

Occurs when a production function displays perpetual increasing returns to scale

Allow a frim to maintain monopoly in production for a period of 17 years as a competition return to development of a new product

A frim gets an exclusive right to provide a service, and in return the firm agrees to limit ist profits and to provide service for all customers / Governments also imposeentry restrictions on many industries. Typically, utilities, such as telephone, electricity distribution, and water, are given franchise monopolies to serve an area. In these cases, the f rm gets an exclusive right to provide a service, and in return the f rm agrees to limit its prices and provide universal service in its region even when some customers might be unprof table

Entry barriers which protect domestic producers from foreign producers. / It could very well be that a single country’s market for a product is only big enough to support two or three f rms in an industry, while the world market is big enough to support a large number of f rms.

The increments in total revenue that comes when output increases by one unit. (Always half of AC curve) / Marginal revenue (MR ) is the change in revenuethat is generated by an additional unit of sales. /The f nal new concept is marginal revenue.Marginal revenue (MR ) is the change in revenue that is generated by an additional unit of sales.MR can be either positive or negative.

People will maximize tehir incomes profits, or sssatisfaction by counting only the marginal costs and benefits of a decision. One of the most important lessons of economics is that you should look at the marginal costs and marginal benef ts of decisions and ignore past or sunk costs .

Past costs that should not be considered when making a current decision.

Imperfect competition prevails in an industrywhenever individual sellers can affect the price of theiroutput. The major kinds of imperfect competition aremonopoly, oligopoly, and monopolistic competition.

The maximum-prof t price (P *) and quantity(q *) of a monopolist come where the f rm’s marginalrevenue equals its marginal cost:MR = MC, at the maximum-prof t P* and q*

1. Marginal revenue (MR ) is the change in revenuethat is generated by an additional unit of sales. 2. Price = average revenue (P =AR ). / 3. With downward-sloping demand, PMR = Preduced revenue on all previous units. 4. Marginal revenue is positive when demand iselastic, zero when demand is unit-elastic, andnegative when demand is inelastic. 5. For perfect competitors,P =MR =AR

Under perfect competition, price equalsaverage revenue equals marginal revenue (P =AR =MR ). A perfect competitor’sdd curve anditsMR curve coincide as horizontal lines.

.Because a perfect competitor can sell all itwants at the market price,MR =P =MC at themaximum-prof t level of output