ANTITRUST
Music:
• Gustav Mahler, Symphony No. 1 (1888)
• Performed by Bavarian Radio Symphony Orchestra, Conductor: Rafael Kubelik (1968)
FACTORS AFFECTING DEMAND
• PERSONAL TASTE
• INCOME
• PRICE OF COMPLEMENTARY GOODS
• PRICE OF SUBSTITUTES
DEMANDDemand
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DEMANDDemand
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DEMANDDemand
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TYPES OF PRODUCER COSTS
• FIXED v.VARIABLE COSTS
• TOTAL v. AVERAGE COSTS
• MARGINAL COST
FIXED v. VARIABLE COSTS
• FIXED COSTS: DO NOT VARY IN SHORT RUN
• VARIABLE COSTS
FIXED v. VARIABLE COSTS
• FIXED COSTS: DO NOT VARY IN SHORT RUN
• VARIABLE COSTS: VARY WITH LEVEL OF PRODUCTION
TOTAL v. AVERAGE COST
• TOTAL COST: ALL COSTS ASSOCIATED WITH PRODUCT LINE
• AVERAGE COST
TOTAL v. AVERAGE COST
• TOTAL COST: ALL COSTS ASSOCIATED WITH PRODUCT LINE
• AVERAGE COST: MEAN COST PER ITEM PRODUCED
TOTAL v. AVERAGE COST
• TOTAL COST: ALL COSTS ASSOCIATED WITH PRODUCT LINE
• AVERAGE COST: MEAN COST PER ITEM PRODUCED– AVERAGE TOTAL COST
– AVERAGE VARIABLE COST
MARGINAL COST =
ADDITIONAL COST OF PRODUCING
ONE MORE UNIT
ALL COSTS INCLUDE “NORMAL” PROFIT
SUPPLY CURVE =MARGINAL COST CURVE
FOR INDUSTRY AS A WHOLE
SUPPLY & DEMANDDemand
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FACTORS AFFECTING FACTORS AFFECTING SUPPLY CURVESUPPLY CURVE
• TECHNOLOGICAL CHANGE
FACTORS AFFECTING FACTORS AFFECTING SUPPLY CURVESUPPLY CURVE
• TECHNOLOGICAL CHANGE
• INPUT PRICES
SUPPLY & DEMANDDemand
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PRODUCERS’ GOAL
MARGINAL REVENUE =
MARGINAL COST
PRODUCERS’ GOAL
IN COMPETITIVE MARKET
MARGINAL REVENUE =
PRICE =
MARGINAL COST
SUPPLY & DEMANDDemand
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OPTIMUM CONDITIONS FOR COMPETITIVE EQUILIBRIUM• FUNGIBLE PRODUCT
• SUPPLIERS CAN’T AFFECT EACH OTHERS PRICING/OUTPUT
• MOBILITY/EQUALITY OF RESOURCE AVAILABILITY
• GOOD INFORMATION/LOW TRANSACTION COSTS
OPTIMUM CONDITIONS FOR COMPETITIVE EQUILIBRIUM• FUNGIBLE PRODUCT
• SUPPLIERS CAN’T AFFECT EACH OTHERS PRICING/OUTPUT
• MOBILITY/EQUALITY OF RESOURCE AVAILABILITY
• GOOD INFORMATION/LOW TRANSACTION COSTS
OPTIMUM CONDITIONS FOR COMPETITIVE EQUILIBRIUM• FUNGIBLE PRODUCT
• SUPPLIERS CAN’T AFFECT EACH OTHERS PRICING/OUTPUT
• MOBILITY/EQUALITY OF RESOURCE AVAILABILITY
• GOOD INFORMATION/LOW TRANSACTION COSTS
OPTIMUM CONDITIONS FOR COMPETITIVE EQUILIBRIUM• FUNGIBLE PRODUCT
• SUPPLIERS CAN’T AFFECT EACH OTHERS PRICING/OUTPUT
• MOBILITY/EQUALITY OF RESOURCE AVAILABILITY
• GOOD INFORMATION/LOW TRANSACTION COSTS
OPTIMUM CONDITIONS FOR COMPETITIVE EQUILIBRIUM• FUNGIBLE PRODUCT
• SUPPLIERS CAN’T AFFECT EACH OTHERS PRICING/OUTPUT
• MOBILITY/EQUALITY OF RESOURCE AVAILABILITY
• GOOD INFORMATION/LOW TRANSACTION COSTS
SUPPLY AND DEMANDDemand
0
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30
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SUPPLY & DEMANDDemand
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SUPPLY & DEMANDDemand
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MC
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ELASTICITY(SENSITIVITY TO PRICE CHANGES)
% CHANGE IN OUTPUT NECESSITATED BY 1% CHANGE IN
PRICE
ELASTICITY > 1DEMAND IS ELASTIC
•CONSUMERS RESPONSIVE TO PRICE CHANGES
•GOOD SUBSTITUTES EXIST
ELASTICITY < 1DEMAND IS INELASTIC
•CONSUMERS UNRESPONSIVE TO PRICE CHANGES
•FEW GOOD SUBSTITUTES
TOTAL REVENUE/DEMAND
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P/$ P
TR
Q P TR MRI MC TC Pft 4 21 84 15 7 28 565 19 95 11 7 35 606 17 102 7 7 42 607 15 105 3 7 49 568 13 104 -1 7 56 489 11 99 -5 7 63 3610 9 90 -9 7 70 2011 7 77 -13 7 77 012 5 60 -17 7 84 -24
-30
-20
-10
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MRI
MC
-30
-20
-10
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MRI
MC
Q P TR MRI MC TC Pft 4 21 84 15 7 28 565 19 95 11 7 35 606 17 102 7 7 42 607 15 105 3 7 49 568 13 104 -1 7 56 489 11 99 -5 7 63 3610 9 90 -9 7 70 2011 7 77 -13 7 77 012 5 60 -17 7 84 -24
-30
-20
-10
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MRI
MC
MONOPOLY: PROBLEMS
• HIGH PRICES
• LOWER OUTPUT
• WEALTH TRANSFER (?)
• DEADWEIGHT LOSS
BARRIERS TO ENTRY
• LIMITED ACCESS TO KEY RESOURCES
• GOVERNMENT REGULATION
• HIGH FIXED COSTS
• BRAND LOYALTY
MONOPOLY: PROBLEMS
• HIGH PRICES
• LOWER OUTPUT
• WEALTH TRANSFER (?)
• DEADWEIGHT LOSS
• PREDATORY CONDUCT
• RENT-SEEKING BEHAVIOR