Microeconomics I partie 3/9
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| Cartes-fiches | 40 |
|---|---|
| Langue | English |
| Catégorie | Economie politique |
| Niveau | Université |
| Crée / Actualisé | 06.06.2019 / 02.10.2023 |
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A market is Pareto efficient if
it achieves the maximum possible total gains-to-trade
Otherwise a market is Pareto inefficient
What if a profits tax is imposed?
I If the monopolist faces a constant-elasticity demand
Application: Impact of Taxes on a Monopolist
Consider a monopolist with constant marginal cost. What
happens to the market price when a quantity tax is imposed?
I If the monopolist faces a linear demand
Markup pricing
Example: Linear Demand and Monopoly
Suppose that the monopolist faces a linear demand curve: p(y) = a - by
Suppose the monopolist’s marginal cost of production is constant, at $k/output unit
How does the price charged by the monopolist vary with the own-price elasticity of demand?
Profit maximization and demand elasticity
Profit maximization and marginal revenue
Profit maximization
Monopoly VS perfect competition
Perfect Competition Monopoly
Many small sellers One seller
Price-taking sellers Price-making seller
Many small buyers (price Many small buyers (price takers)
takers)
Homogeneous products No other product
Sellers do not behave Sellers do not behave strategically
strategically
Free entry No entry
Monika Mrazov´ a´ Micro I: Monopoly
Economic rent is
the payment for an input that is in excess of the minimum payment required to have that input supplied
Fixed inputs and economic rent: graph
Long-run fixed cost
An input (e.g. an operating license) that is fixed in the long-run causes a long-run fixed cost, F
Long-run implication for taxation: graph
Short-run implications for taxation: graph
In a short-run equilibrium, the burden of a sales or an excise tax is typically shared by both buyers and sellers, tax incidence of the tax depending upon the own-price elasticities of demand and supply
In the long-run market equilibrium, the market price is determined
solely by
the long-run minimum average production cost
Long-run industry supply: the market long run supply curve
Long-run industry supply: as firm get smaller
The market long-run supply curve
Constructing the long-run industry supply2
Constructing the long-run industry supply
The long-run number of firms in the industry is
the largest number for which the market price is at least as large as min AC(y)
Entry increases
industry supply, causing pse to fall
Economic profit is positive when
the market price pse is higher than a firm’s minimum average cost: pse > min AC(y)
Determining the long-run number of firms
Positive economic profit induces entry
Short-run industry equilibrium: three cases of profit
The short-run equilibrium: entry, exit, profits
In a short-run, neither entry nor exit can occur
Consequently, in a short-run equilibrium, some firms may earn positive economics profits, others may suffer economic losses,
and still others may earn zero economic profit
The short-run industry supply curve
The short run industry supply function
At what output does minimum average cost occur? What about minimum average variable cost? What is the value of marginal cost at each of these outputs?
How does the average cost curve relate to returns to scale?
Derive the firm’s fixed, variable, average, marginal, averaged fixed and average variable cost functions. Sketch these
functions on a graph for q = 0 to q = 10. AFC, AVC, AC, MC
Derive the firm’s fixed, variable, average, marginal, averaged fixed and average variable cost functions. Sketch these functions on a graph for q = 0 to q = 10. FC, VC, TC
How is the firm’s long-run supply curve related to all of its short-run supply curves?
Long-run vs. short-run supply decisions 1/4
Long-run supply decision
Supply curve (short run) is
upward sloping part of the MCs curve above AV C
Shutdown rule
the firm produces positive output as long as
p > AV C
