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Day 8

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Day 8

  1. 1. Full Sheet Bellringer 1. Describe a time you paid more money for a good or service you thought was better quality. 2. Describe a time when you bought a good or service that was cheaper than other brands. 3. Describe a time when you competed against someone else.
  2. 2. Competition experiment • 3 groups • 1 volunteer • Group of 4, can talk • Everyone else, can’t talk • Think about price & quality I will buy one for up to $1 Widget: WPrice: $ Your name:
  3. 3. Pricing power • Some firms can choose their own price • Price makers • Some firms must take the prices the market gives them • Price takers
  4. 4. On your BR 4. How much pricing power did you have during the simulation? Explain why. 5. Why do consumers benefit from competition? Use three specific business examples in your answer 6. Why do producers suffer from competition? 7. Why does pricing power depend on the number of firms in the market?
  5. 5. I Love Lucy clip
  6. 6. Bellringer 1. How many players win the game “Monopoly” if you play it until the end? No we won’t be playing it in this class. 2. How many suppliers sell lunch here at Flowing Wells? 3. How would things change if FW allowed multiple sellers during lunch?
  7. 7. 4 Market Structures • Monopoly • Monopolistic Competition • Perfect Competition • Oligopoly
  8. 8. Monopoly • A market for a good/service with one dominate seller • Firm has total “pricing power” • Has extremely high entry costs, OR impossible
  9. 9. Types of surplus • Consumer surplus: difference between budget and actual price • Producer surplus: difference between cost and price (really just profit) Budget: $50 Actual: $40
  10. 10. Draw less supply on board • What happens to CS?
  11. 11. Price Discrimination Think/Pair/Share Examples? Senior discount Student discount Ebay
  12. 12. • Santa Barbara, CA
  13. 13. • Argentina
  14. 14. Types of Monopoly • Geographic • Only firm in a certain area • Fences • Small towns • Other example? • Draw PEST change on board
  15. 15. Types of Monopoly • Government • Granted by the government • “public utilities” • Reasoning?
  16. 16. Types of Monopoly • Technological • Due to technology • (Patents) • (Copyrights) • Software, biotechnology, artistic • Reasoning? • examples
  17. 17. On your BR Name the type of monopoly & why 4. Fernanda designs a new game app 5. Popcorn at Harkins movie theater 6. Interstate Highways like I-10 or I-19 7. The only mechanic Ajo, Arizona 8. School lunches at Pueblo 9. Snacks in certain Pueblo classrooms 10.Secret recipe for Gatorade 11.US military 12.Tucson Water Company 13.Expensive soda at a baseball game
  18. 18. Closure questions 4. Why do economists worry about monopolies? (hint: think about prices) 5. Why are technological monopolies allowed to exist? (think about creative businesses) 6. Do you think government monopolies are always positive for consumers? (consider our school lunches, or the AZ MVD)
  19. 19. For the other 3 Market Structures • Monopoly • Monopolistic Competition - Juniors • Perfect Competition Sophomores • Oligopoly - Seniors • Split into two groups • 1 group makes/writes lesson • 1 group writes simulation, game or 5 min skit (everyone talks) • 10/10 if everyone participates and its easy to understand
  20. 20. Bellringer 1. Do an OPTIC on this cartoon: O – Cartoon, newspaper 2012 P – ???? T – no title I – sizes b/w parts C - ?????
  21. 21. Perfect Competition Market • Features: • Many firms • Nearly identical products • No pricing power • Same Price! • Easy to start new firm • Easy to close down firm • Perfectly informed consumers • Costs really important Other Examples?
  22. 22. Monopolistic Competition Market • Features: • Many firms • Different or perceived different products • Some pricing power “price makers” • Different prices • Can be easy to start new firm • Can be easy to close down firm • Not fully informed consumers Other Examples?
  23. 23. Oligopoly Market • Features: • Few very large firms • Very similar products • Some pricing power “price makers” • Difficult to enter market • Difficult to close down company • Not fully informed consumers Other Examples?
  24. 24. Perfect vs. Monopolistic Competition • How could you contrast the two markets?
  25. 25. Oligopoly & Monopoly • How could you contrast the two markets?
  26. 26. Draw a 4 part diagram of the market structures
  27. 27. Perfect Competition Monopolistic Competition Oligopoly Monopoly
  28. 28. What type of market? • Mexican Food
  29. 29. What type of market?
  30. 30. What type of market? • Blank DVD’s
  31. 31. What type of market?
  32. 32. What type of market?
  33. 33. What type of market?
  34. 34. What type of market? • Movie theaters in Tucson
  35. 35. What type of market? • Hair cut
  36. 36. What type of market? • Broadcast TV
  37. 37. What type of market? • Electric Power
  38. 38. What type of market? • Hotels
  39. 39. What type of market? • Notebook paper
  40. 40. Costs • Put the following businesses in order by how expensive they would be to start up starting with the cheapest: • NFL team • Landscaping • Restaurant • Television station • Company that writes phone apps • Lemonade stand • T-shirt (silkscreen) printer
  41. 41. • Costs!
  42. 42. THE COSTS OF PRODUCTION 44 Total Revenue, Total Cost, Profit • We assume that the firm’s goal is to maximize profit. Profit = Total revenue – Total cost the amount a firm receives from the sale of its output the market value of the inputs a firm uses in production
  43. 43. An unsuccessful business • Costs that they can change tomorrow • Costs that they can’t change
  44. 44. Let’s think more specifically about costs • Fixed Costs = costs that do not change based on production and don’t change in SR • Examples: capital goods, tools, buildings, menus Nokia factory in Finland Coke factory in Atlanta, Georgia
  45. 45. Special fixed costs • “Entry costs” – costs to start up the business Business with low Entry costs Business with very high Entry costs
  46. 46. Costs we can change in the short run Variable costs = costs that change based on production The more I produce, the more cost I will incur. If I don’t produce at all, my variable costs will be 0 For example: labor, electricity, raw materials Nike factory in China
  47. 47. Michael Jordan visiting Nike Factory in 1999 Why produce in China?
  48. 48. Marginal Costs • Marginal costs = the cost of producing 1 additional unit • For example: • Why helpful? • Diminishing marginal product! Widgets 0 1 2 3 4 FC 1 1 1 1 1 VC 0 6 11 16 22 MC X
  49. 49. Total Costs • Total Costs = fixed + variable costs For example: Widgets 0 1 2 3 4 FC 1 1 1 1 1 VC 0 1 2 3 5 TC 1 2 3 4 6 MC X 1 1 1 2 Revenue 0 2 4 6 8 Assume Widgets price $2/each Profit -1 0 1 2 2
  50. 50. BR Quiz 1. Write 3 examples of FC for this firm 2. Write 3 examples of VC for this firm 3. How could this firm increase its TR? 4. Give an example of diminishing marginal returns for this firm

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