This document discusses short run and long run costs of production. It defines total fixed costs, total variable costs, total costs, average fixed costs, average variable costs, average costs, and marginal costs in the short run. It then discusses how short run average cost curves relate to long run average cost curves and how the long run average cost curve is derived from short run average cost curves. It also discusses the long run marginal cost curve and how technological progress can shift cost curves. Finally, it briefly discusses profit maximization where marginal revenue equals marginal cost.
This document discusses cost concepts from an accounting and analytical perspective. It defines different types of costs such as fixed, variable, total, average, and marginal cost. It explains the relationship between these costs and how they change with varying levels of output in the short-run and long-run. The short-run cost curves are U-shaped while the long-run average cost curve is U-shaped, reflecting economies and diseconomies of scale. Other concepts covered include opportunity cost, sunk cost, learning curves, and economies of scope.
- The document discusses different types of costs including explicit, economic, and relevant costs. It also discusses short-run and long-run costs.
- Graphs show cost curves including average total cost, average variable cost, marginal cost, and how they relate to quantity produced.
- The shapes of long-run cost curves are explained, including how returns to scale impact the average cost curve. Economies and diseconomies of scale as well as learning curves are also summarized.
This document discusses the economic costs of production for businesses. It defines economic costs as the opportunity costs of resources used in production, including both explicit monetary costs and implicit costs. The document distinguishes between accounting profit, which only considers explicit costs, and economic profit, which considers total opportunity costs. It then covers the relationships between total, marginal, and average production in the short-run and how costs like total, average, and marginal costs are derived. Finally, it discusses long-run production costs and how economies of scale can result in lower average costs for businesses.
This document contains an analysis of costs, market forces, and competitors for PGMAX (2014-2015). It includes sections on cost concepts, cost functions, short-run and long-run costs, economies of scale, and cost-volume-profit analysis. Market and competitor analyses cover market size, share, trends, Porter's Five Forces model, and assessing strengths and weaknesses of competitors. Break-even analysis calculations are shown for a example company.
The cost of production/Chapter 7(pindyck)RAHUL SINHA
content
•MEASURING COST: WHICH COSTS MATTER?
•Fixed and variable cost
•Fixed versus sunk cost
•Amortizing Sunk Costs
•Marginal cost
•Average cost
•Determinants of short run cost
•Diminishing marginal returns
•The shapes of cost curves
•The Average–Marginal Relationship
•Costs in a long run
•Cost minimizing input choices
•Isocost lines
•Marginal rate of technical substitution
•Expansion path
•The Inflexibility of Short-Run Production
•Long run average cost
•Economies and Diseconomies of Scale
•The Relationship Between Short-Run and Long-Run Cost
•Break even analysis
This document discusses production functions and cost analysis. It begins by defining a production function as a mathematical equation that relates inputs to outputs. It notes that production functions can be used to determine optimal input levels and minimize costs. The document then discusses several concepts related to production functions including total product, average product, and marginal product. It also outlines several managerial uses of production functions such as determining profitable production levels and prices. The document goes on to explain the Cobb-Douglas production function and provides its mathematical form. It also discusses laws of production and empirical estimation of costs. Finally, it covers short-run and long-run cost curves as well as concepts like fixed costs, variable costs, marginal costs, economies of scale,
This document discusses cost concepts from an accounting and analytical perspective. It defines different types of costs such as fixed, variable, total, average, and marginal cost. It explains the relationship between these costs and how they change with varying levels of output in the short-run and long-run. The short-run cost curves are U-shaped while the long-run average cost curve is U-shaped, reflecting economies and diseconomies of scale. Other concepts covered include opportunity cost, sunk cost, learning curves, and economies of scope.
- The document discusses different types of costs including explicit, economic, and relevant costs. It also discusses short-run and long-run costs.
- Graphs show cost curves including average total cost, average variable cost, marginal cost, and how they relate to quantity produced.
- The shapes of long-run cost curves are explained, including how returns to scale impact the average cost curve. Economies and diseconomies of scale as well as learning curves are also summarized.
This document discusses the economic costs of production for businesses. It defines economic costs as the opportunity costs of resources used in production, including both explicit monetary costs and implicit costs. The document distinguishes between accounting profit, which only considers explicit costs, and economic profit, which considers total opportunity costs. It then covers the relationships between total, marginal, and average production in the short-run and how costs like total, average, and marginal costs are derived. Finally, it discusses long-run production costs and how economies of scale can result in lower average costs for businesses.
This document contains an analysis of costs, market forces, and competitors for PGMAX (2014-2015). It includes sections on cost concepts, cost functions, short-run and long-run costs, economies of scale, and cost-volume-profit analysis. Market and competitor analyses cover market size, share, trends, Porter's Five Forces model, and assessing strengths and weaknesses of competitors. Break-even analysis calculations are shown for a example company.
The cost of production/Chapter 7(pindyck)RAHUL SINHA
content
•MEASURING COST: WHICH COSTS MATTER?
•Fixed and variable cost
•Fixed versus sunk cost
•Amortizing Sunk Costs
•Marginal cost
•Average cost
•Determinants of short run cost
•Diminishing marginal returns
•The shapes of cost curves
•The Average–Marginal Relationship
•Costs in a long run
•Cost minimizing input choices
•Isocost lines
•Marginal rate of technical substitution
•Expansion path
•The Inflexibility of Short-Run Production
•Long run average cost
•Economies and Diseconomies of Scale
•The Relationship Between Short-Run and Long-Run Cost
•Break even analysis
This document discusses production functions and cost analysis. It begins by defining a production function as a mathematical equation that relates inputs to outputs. It notes that production functions can be used to determine optimal input levels and minimize costs. The document then discusses several concepts related to production functions including total product, average product, and marginal product. It also outlines several managerial uses of production functions such as determining profitable production levels and prices. The document goes on to explain the Cobb-Douglas production function and provides its mathematical form. It also discusses laws of production and empirical estimation of costs. Finally, it covers short-run and long-run cost curves as well as concepts like fixed costs, variable costs, marginal costs, economies of scale,
A firm's total cost includes both explicit costs related to money outlays as well as implicit opportunity costs related to forgone alternative production opportunities. Economists measure economic profit as total revenue minus total costs, including both explicit and implicit costs, while accountants only consider explicit costs in measuring accounting profit. For a firm to remain competitive in an industry, it needs to earn at least a normal profit to cover the opportunity cost of capital and enterprise. While accounting profit only considers explicit costs, economic analysis considers both explicit and implicit opportunity costs in determining economic profit.
This document discusses key concepts related to business costs including:
1. It defines economic costs, accounting costs, and sunk costs.
2. It explains the differences between short-run and long-run costs, and how total, average, and marginal costs are calculated in each time period.
3. It provides examples of cost schedules and diagrams cost curves, discussing their characteristics and relationships.
The document discusses the economic theory of costs, distinguishing between short-run and long-run costs. It defines short-run costs as those that are fixed over a period where some factors of production are fixed, like capital equipment. It also defines long-run costs as those over a period where all factors can change. The document then discusses the concepts of fixed costs, variable costs, total costs, average costs and marginal costs. It provides examples and diagrams to illustrate the relationships between these different cost concepts in both the short-run and long-run.
Cost Output Relationship; Estimation of Cost and OutputDheeraj Rajput
Dheeraj Rawal presented on cost-output relationships and methods for estimating cost functions. There are two main types of cost estimation: short-run and long-run. Short-run estimation looks at costs when some inputs are fixed, while long-run allows all inputs to vary. Common short-run cost curves include total, average, and marginal cost curves. Long-run estimation derives a minimum cost curve from multiple short-run curves. Methods for estimating cost functions include accounting analysis, high-low analysis, scatterplots, and regression analysis. Challenges include accounting for time periods and cost adjustments over time.
1. When business in the City of London slows down, the demand for MBA courses tends to increase as the opportunity cost of doing an MBA is reduced with falling city bonuses.
2. According to a professor at Oxford, when financial markets decline and city bonuses fall, it becomes less costly to undertake an MBA program.
3. The slowdown in business in the City of London in 2008 led to a rise in recruitment for MBA courses as the costs of doing so compared to potential bonuses were lower.
The document discusses various cost concepts in economics including:
- Opportunity cost is the next best alternative use of a resource.
- Accounting costs include explicit payments, while economic costs also include implicit opportunity costs.
- Total, average, and marginal costs are defined for both the short-run and long-run. In the short-run some costs are fixed while in the long-run all costs are variable.
- Cost curves like AVC, ATC, and MC are U-shaped based on the law of diminishing returns in production. Minimum efficient scale is where long-run average costs are minimized.
Cost means the amount of expenditure (actual or notional) incurred on, or attributable to, a given thing.
The Institute of Cost and Management Accountant, England (ICMA) has defined Cost Accounting as – “the process of accounting for the costs from the point at which expenditure incurred, to the establishment of its ultimate relationship with cost centers and cost units.
In its widest sense, it embraces the preparation of statistical data, the application of cost control methods and the ascertainment of the profitability of activities carried out or planned”.
The document discusses various concepts related to cost. It defines cost as a sacrifice or foregone opportunity measured in monetary terms. It then discusses different types of costs such as fixed costs, variable costs, sunk costs, explicit costs, implicit costs, and others. It also discusses cost determination factors and different cost curves and functions in the short run and long run, including total cost, average cost, and marginal cost curves. Finally, it discusses costs for multi-product firms and joint products.
Perfectly Competitive Market: Basic Concepts and AssumptionsArambamSophia
The PPT discusses the basic concept of a market in Economics and also the assumptions underlying the perfectly competitive market. It also discusses the concept of costs in the traditional theory of the firm. It is not an advanced lecture and would be useful for those not familiar with the basics. The reference is 'Modern Microeconomics' by Koutsoyiannnis'
This document discusses concepts related to cost analysis and production functions. It defines different types of costs such as fixed costs, variable costs, total costs, average costs and marginal costs. It also discusses the cost-output relationship in the short run and how total cost is composed of total fixed cost and total variable cost. The document then defines different types of revenue such as total revenue, average revenue and marginal revenue. It also explains the production function and how it shows the relationship between inputs and maximum possible output. Finally, it discusses the law of variable proportions, economies of scale, diseconomies of scale and what an isoquant is.
This document discusses cost concepts including the theory of costs, types of costs, and cost functions. It explains that a firm's total costs are made up of fixed costs and variable costs. Fixed costs do not change with output while variable costs do change with output. It also discusses the relationships between total cost, average cost, and marginal cost. Specifically, it explains that as output increases, average and marginal costs first decrease then increase, with marginal cost rising more quickly than average cost. The document also differentiates between short-run and long-run cost functions and how a firm's costs change in each time period.
This document discusses cost analysis and various cost concepts. It begins by defining cost analysis and its importance in business decision making. It then outlines several types of costs including: opportunity cost, economic cost, accounting cost, private and social costs, incremental and sunk costs, direct and indirect costs, average, marginal and total costs. It also discusses cost-output relationships in the short-run and long-run, factors determining costs, and break-even analysis. The key purpose is to provide an overview of different cost concepts and cost-output relationships that are important for business analysis and decision making.
This document discusses various cost concepts in economics. It defines private and social costs, and explains how private costs can be measured using economic and accounting costs. Economic cost includes explicit costs like wages as well as implicit opportunity costs. The document then discusses different types of costs in the short run including total, variable, fixed, average, and marginal costs. It provides examples and graphs to illustrate cost curves and their relationships. Specifically, it explains that AVC, ATC and MC curves are U-shaped due to the law of variable proportions. The document also discusses costs in the long run and how the long run average cost curve is determined by the envelope of short run average cost curves. Finally, it discusses the learning curve concept and how
This document provides an overview of cost-volume-profit (CVP) analysis, including definitions, assumptions, components and graphs used. CVP analysis studies how costs, volume and prices impact profits. It assumes costs can be separated into fixed and variable portions. The key aspects covered are the linear relationships between total costs/revenue, calculating break-even point, and how profits are affected by changes in volume, price, variable costs and fixed costs. Utility and limitations of CVP analysis are also discussed.
This document provides an overview of cost-volume-profit (CVP) analysis. It defines CVP analysis and notes that it is used to study how profits change with volume, costs, and prices. The key assumptions of CVP analysis are described, including constant unit costs and prices. The components of a CVP analysis, including fixed costs, variable costs, sales price, and contribution margin, are defined. The relationships between these components in a CVP graph and chart are explained. The document then discusses how profits are affected by changes in volume, price, variable costs, fixed costs, and combinations of factors. It also covers the utility and limitations of CVP analysis and break-even charts.
Lecture 9 - Firms in Competitive Markets.pptRyanJAnward
This document discusses competitive markets and firm behavior. It defines a competitive market as having many small firms, identical products, and free entry and exit. Each firm is a price taker and maximizes profits by producing where marginal revenue equals marginal cost. In the short run, firms will shut down if price is below average variable cost, while in the long run they will exit if price is below average total cost. The market supply curve is determined by the aggregation of individual firm supply curves.
The document discusses different concepts of cost including nominal cost, real cost, money cost, and opportunity cost. It also explains the differences between short-run and long-run costs, and how average, marginal, total, fixed, and variable costs are calculated and relate to each other. Finally, it addresses the shapes of long-run average and marginal cost curves and why they change with scale of production.
This document discusses long-run average costs. It explains that in the long-run, all costs are variable. It describes diminishing returns to increasing quantities of capital and labor. The long-run average total cost curve shows the lowest attainable average cost for different output levels when plant size and labor are varied. Economies of scale occur when a percentage increase in output exceeds a percentage increase in inputs, leading to falling long-run average costs. Diseconomies of scale arise from management complexity at large scales, causing long-run average costs to rise. Constant returns to scale yield a horizontal long-run average cost curve. Minimum efficient scale is the smallest output where long-run average cost is lowest.
The document discusses short-run and long-run decision making for firms. In the short-run, firms' capital is fixed but other inputs can vary, while in the long-run all inputs are variable. Short-run decisions have cost curves that are U-shaped, while the long-run average cost curve is composed of the lowest short-run cost for each output level. Economies and diseconomies of scale determine the shape of the long-run average cost curve.
This document discusses key concepts in production costs, including:
1. Cost minimization occurs when the slope of the isocost curve equals the slope of the isoquant curve.
2. Firms should substitute cheaper inputs for more expensive inputs when input prices rise to minimize costs.
3. Economies of scale exist when average costs decrease with increased output due to factors like specialization and bulk purchasing. Diseconomies of scale occur when management becomes complex and average costs increase with more output.
4. Cost functions show the relationship between total, fixed, variable, average, and marginal costs as a firm's output changes. Marginal cost is the change in total cost from one additional unit of output.
Financial management involves planning, sourcing, using, and controlling funds to achieve organizational objectives. It has three key elements: financial planning/budgeting, financial control, and financial decision-making regarding investments and financing. Proper financial management ensures accountability, viability, and effective use of scarce resources through practices like establishing budgets, internal controls, financial reporting, and auditing. The overall goals are to maximize benefits to stakeholders and ensure the long-term sustainability of the organization.
The document discusses resource mobilization, including its objectives, key concepts, and various methods. It aims to understand how to mobilize resources through identifying available funding sources like government, private sector, foundations, and understanding principles of successful fundraising. Some methods discussed include generating earned income through fees, accessing indigenous foundations, individual philanthropy, government sources, foreign agencies, corporations, building reserve funds, and endowments. Diversifying funding sources and strong stakeholder relationships are emphasized for organizational sustainability.
A firm's total cost includes both explicit costs related to money outlays as well as implicit opportunity costs related to forgone alternative production opportunities. Economists measure economic profit as total revenue minus total costs, including both explicit and implicit costs, while accountants only consider explicit costs in measuring accounting profit. For a firm to remain competitive in an industry, it needs to earn at least a normal profit to cover the opportunity cost of capital and enterprise. While accounting profit only considers explicit costs, economic analysis considers both explicit and implicit opportunity costs in determining economic profit.
This document discusses key concepts related to business costs including:
1. It defines economic costs, accounting costs, and sunk costs.
2. It explains the differences between short-run and long-run costs, and how total, average, and marginal costs are calculated in each time period.
3. It provides examples of cost schedules and diagrams cost curves, discussing their characteristics and relationships.
The document discusses the economic theory of costs, distinguishing between short-run and long-run costs. It defines short-run costs as those that are fixed over a period where some factors of production are fixed, like capital equipment. It also defines long-run costs as those over a period where all factors can change. The document then discusses the concepts of fixed costs, variable costs, total costs, average costs and marginal costs. It provides examples and diagrams to illustrate the relationships between these different cost concepts in both the short-run and long-run.
Cost Output Relationship; Estimation of Cost and OutputDheeraj Rajput
Dheeraj Rawal presented on cost-output relationships and methods for estimating cost functions. There are two main types of cost estimation: short-run and long-run. Short-run estimation looks at costs when some inputs are fixed, while long-run allows all inputs to vary. Common short-run cost curves include total, average, and marginal cost curves. Long-run estimation derives a minimum cost curve from multiple short-run curves. Methods for estimating cost functions include accounting analysis, high-low analysis, scatterplots, and regression analysis. Challenges include accounting for time periods and cost adjustments over time.
1. When business in the City of London slows down, the demand for MBA courses tends to increase as the opportunity cost of doing an MBA is reduced with falling city bonuses.
2. According to a professor at Oxford, when financial markets decline and city bonuses fall, it becomes less costly to undertake an MBA program.
3. The slowdown in business in the City of London in 2008 led to a rise in recruitment for MBA courses as the costs of doing so compared to potential bonuses were lower.
The document discusses various cost concepts in economics including:
- Opportunity cost is the next best alternative use of a resource.
- Accounting costs include explicit payments, while economic costs also include implicit opportunity costs.
- Total, average, and marginal costs are defined for both the short-run and long-run. In the short-run some costs are fixed while in the long-run all costs are variable.
- Cost curves like AVC, ATC, and MC are U-shaped based on the law of diminishing returns in production. Minimum efficient scale is where long-run average costs are minimized.
Cost means the amount of expenditure (actual or notional) incurred on, or attributable to, a given thing.
The Institute of Cost and Management Accountant, England (ICMA) has defined Cost Accounting as – “the process of accounting for the costs from the point at which expenditure incurred, to the establishment of its ultimate relationship with cost centers and cost units.
In its widest sense, it embraces the preparation of statistical data, the application of cost control methods and the ascertainment of the profitability of activities carried out or planned”.
The document discusses various concepts related to cost. It defines cost as a sacrifice or foregone opportunity measured in monetary terms. It then discusses different types of costs such as fixed costs, variable costs, sunk costs, explicit costs, implicit costs, and others. It also discusses cost determination factors and different cost curves and functions in the short run and long run, including total cost, average cost, and marginal cost curves. Finally, it discusses costs for multi-product firms and joint products.
Perfectly Competitive Market: Basic Concepts and AssumptionsArambamSophia
The PPT discusses the basic concept of a market in Economics and also the assumptions underlying the perfectly competitive market. It also discusses the concept of costs in the traditional theory of the firm. It is not an advanced lecture and would be useful for those not familiar with the basics. The reference is 'Modern Microeconomics' by Koutsoyiannnis'
This document discusses concepts related to cost analysis and production functions. It defines different types of costs such as fixed costs, variable costs, total costs, average costs and marginal costs. It also discusses the cost-output relationship in the short run and how total cost is composed of total fixed cost and total variable cost. The document then defines different types of revenue such as total revenue, average revenue and marginal revenue. It also explains the production function and how it shows the relationship between inputs and maximum possible output. Finally, it discusses the law of variable proportions, economies of scale, diseconomies of scale and what an isoquant is.
This document discusses cost concepts including the theory of costs, types of costs, and cost functions. It explains that a firm's total costs are made up of fixed costs and variable costs. Fixed costs do not change with output while variable costs do change with output. It also discusses the relationships between total cost, average cost, and marginal cost. Specifically, it explains that as output increases, average and marginal costs first decrease then increase, with marginal cost rising more quickly than average cost. The document also differentiates between short-run and long-run cost functions and how a firm's costs change in each time period.
This document discusses cost analysis and various cost concepts. It begins by defining cost analysis and its importance in business decision making. It then outlines several types of costs including: opportunity cost, economic cost, accounting cost, private and social costs, incremental and sunk costs, direct and indirect costs, average, marginal and total costs. It also discusses cost-output relationships in the short-run and long-run, factors determining costs, and break-even analysis. The key purpose is to provide an overview of different cost concepts and cost-output relationships that are important for business analysis and decision making.
This document discusses various cost concepts in economics. It defines private and social costs, and explains how private costs can be measured using economic and accounting costs. Economic cost includes explicit costs like wages as well as implicit opportunity costs. The document then discusses different types of costs in the short run including total, variable, fixed, average, and marginal costs. It provides examples and graphs to illustrate cost curves and their relationships. Specifically, it explains that AVC, ATC and MC curves are U-shaped due to the law of variable proportions. The document also discusses costs in the long run and how the long run average cost curve is determined by the envelope of short run average cost curves. Finally, it discusses the learning curve concept and how
This document provides an overview of cost-volume-profit (CVP) analysis, including definitions, assumptions, components and graphs used. CVP analysis studies how costs, volume and prices impact profits. It assumes costs can be separated into fixed and variable portions. The key aspects covered are the linear relationships between total costs/revenue, calculating break-even point, and how profits are affected by changes in volume, price, variable costs and fixed costs. Utility and limitations of CVP analysis are also discussed.
This document provides an overview of cost-volume-profit (CVP) analysis. It defines CVP analysis and notes that it is used to study how profits change with volume, costs, and prices. The key assumptions of CVP analysis are described, including constant unit costs and prices. The components of a CVP analysis, including fixed costs, variable costs, sales price, and contribution margin, are defined. The relationships between these components in a CVP graph and chart are explained. The document then discusses how profits are affected by changes in volume, price, variable costs, fixed costs, and combinations of factors. It also covers the utility and limitations of CVP analysis and break-even charts.
Lecture 9 - Firms in Competitive Markets.pptRyanJAnward
This document discusses competitive markets and firm behavior. It defines a competitive market as having many small firms, identical products, and free entry and exit. Each firm is a price taker and maximizes profits by producing where marginal revenue equals marginal cost. In the short run, firms will shut down if price is below average variable cost, while in the long run they will exit if price is below average total cost. The market supply curve is determined by the aggregation of individual firm supply curves.
The document discusses different concepts of cost including nominal cost, real cost, money cost, and opportunity cost. It also explains the differences between short-run and long-run costs, and how average, marginal, total, fixed, and variable costs are calculated and relate to each other. Finally, it addresses the shapes of long-run average and marginal cost curves and why they change with scale of production.
This document discusses long-run average costs. It explains that in the long-run, all costs are variable. It describes diminishing returns to increasing quantities of capital and labor. The long-run average total cost curve shows the lowest attainable average cost for different output levels when plant size and labor are varied. Economies of scale occur when a percentage increase in output exceeds a percentage increase in inputs, leading to falling long-run average costs. Diseconomies of scale arise from management complexity at large scales, causing long-run average costs to rise. Constant returns to scale yield a horizontal long-run average cost curve. Minimum efficient scale is the smallest output where long-run average cost is lowest.
The document discusses short-run and long-run decision making for firms. In the short-run, firms' capital is fixed but other inputs can vary, while in the long-run all inputs are variable. Short-run decisions have cost curves that are U-shaped, while the long-run average cost curve is composed of the lowest short-run cost for each output level. Economies and diseconomies of scale determine the shape of the long-run average cost curve.
This document discusses key concepts in production costs, including:
1. Cost minimization occurs when the slope of the isocost curve equals the slope of the isoquant curve.
2. Firms should substitute cheaper inputs for more expensive inputs when input prices rise to minimize costs.
3. Economies of scale exist when average costs decrease with increased output due to factors like specialization and bulk purchasing. Diseconomies of scale occur when management becomes complex and average costs increase with more output.
4. Cost functions show the relationship between total, fixed, variable, average, and marginal costs as a firm's output changes. Marginal cost is the change in total cost from one additional unit of output.
Financial management involves planning, sourcing, using, and controlling funds to achieve organizational objectives. It has three key elements: financial planning/budgeting, financial control, and financial decision-making regarding investments and financing. Proper financial management ensures accountability, viability, and effective use of scarce resources through practices like establishing budgets, internal controls, financial reporting, and auditing. The overall goals are to maximize benefits to stakeholders and ensure the long-term sustainability of the organization.
The document discusses resource mobilization, including its objectives, key concepts, and various methods. It aims to understand how to mobilize resources through identifying available funding sources like government, private sector, foundations, and understanding principles of successful fundraising. Some methods discussed include generating earned income through fees, accessing indigenous foundations, individual philanthropy, government sources, foreign agencies, corporations, building reserve funds, and endowments. Diversifying funding sources and strong stakeholder relationships are emphasized for organizational sustainability.
The document discusses the international foreign exchange market. It defines the market as composed primarily of banks serving firms and consumers who wish to buy and sell various currencies. The market is open globally 24 hours a day, with major trading centers located in London, New York, Tokyo, and Hong Kong. Daily trading exceeds $5.1 trillion. Transactions can occur via phone, internet, or electronically without the parties meeting in person. The document also discusses spot markets, which involve immediate currency exchanges, and forward markets, which allow contracting future exchanges at agreed upon rates.
This document discusses human capital theory and the economics of education. It covers several key points:
1. Human capital theory views workers as a productive factor through education and training, rather than just a static input. Investment in human capital through education can increase productivity and economic growth.
2. Issues that can impact human capital development include rapidly growing populations, increasing unemployment, and difficulties measuring education's impact. Incentives are also important to attract skilled workers to needed occupations.
3. Education contributes to economic growth by improving literacy and helping acquire skills. Literacy boosts productivity while skills allow better resource management. Efficiency measures the relationship between educational inputs and outputs. Effectiveness means achieving educational objectives like student performance.
This document discusses the economics of education. It begins by defining economics of education as the study and practice of resource generation, allocation, and utilization in education and its relationship to the general economy. It then covers the scope of economics of education, including topics like educational finance, costs and benefits of education investment, and the impact of education on economic growth. The document also discusses debates around whether education should be viewed as consumption or investment. Finally, it introduces concepts of supply and demand for education, including the determinants and curves of both supply and demand.
This document discusses production theory and costs. It begins by defining short-run production functions and key terms like total product, average product, and marginal product of labor. It then presents a sample production function table and shows how to calculate average and marginal product. Graphs of the total, average, and marginal product curves are presented and their shapes are explained. The concept of stages of production is introduced based on these curves. The document then discusses production functions with two variable inputs, defining isoquants and the marginal rate of technical substitution. Isoquants and isocosts are presented and used to define the point of producer equilibrium. Finally, the expansion path and returns to scale are briefly explained.
This document provides an overview of microeconomics and key microeconomic concepts. It discusses:
1) The meaning and scope of economics, including the basic economic problems of what, how, and for whom to produce given scarce resources.
2) Microeconomics and its focus on individual decision-making units like consumers and firms.
3) Key microeconomic concepts like scarcity, opportunity cost, production possibility frontiers, the distinctions between cardinal and ordinal utility, and consumer equilibrium under utility maximization.
International Portfolio Investment and Diversification2.pptxVenanceNDALICHAKO1
Portfolio management involves making investment decisions about asset allocation to balance risk and return for individuals and institutions. A portfolio is a group of financial assets such as stocks and bonds. Portfolio investments are passive and made with the goal of earning returns. Risk is reduced through diversification across many assets whose returns are not perfectly correlated. The expected return of a portfolio is the weighted average of the expected returns of its individual components, weighted by their proportion in the portfolio. Portfolio risk comes from asset-specific and systematic sources and can be measured by the variance and standard deviation of returns. Diversification reduces asset-specific risk but not systematic risk.
The document discusses international capital budgeting decisions. It covers methodology for capital budgeting including identifying relevant cash inflows and outflows, and using the weighted average cost of capital (WACC) as the discount rate. It notes additional complexities for international projects, such as distinguishing between project and parent cash flows, needing foreign exchange rate forecasts, accounting for long-term inflation and political risk, and ensuring proper treatment of subsidized financing and transfer pricing impacts. The goal is to accurately evaluate potential foreign investments.
Foreign direct investment (FDI) refers to investment made by a firm or individual in one country into business interests located in another country, in order to gain control or influence over them. There are three main types of FDI: greenfield investment which builds new facilities from scratch; mergers and acquisitions of existing foreign firms; and brownfield investment which upgrades facilities of acquired firms. Multinational firms engage in FDI for market seeking, resource seeking, strategic asset seeking, or efficiency seeking reasons. They establish foreign operations through franchising, branches, subsidiaries, or joint ventures with local firms. While developing countries receive FDI, Asian developing countries are the largest recipients among developing nations.
STREETONOMICS: Exploring the Uncharted Territories of Informal Markets throug...sameer shah
Delve into the world of STREETONOMICS, where a team of 7 enthusiasts embarks on a journey to understand unorganized markets. By engaging with a coffee street vendor and crafting questionnaires, this project uncovers valuable insights into consumer behavior and market dynamics in informal settings."
2. Elemental Economics - Mineral demand.pdfNeal Brewster
After this second you should be able to: Explain the main determinants of demand for any mineral product, and their relative importance; recognise and explain how demand for any product is likely to change with economic activity; recognise and explain the roles of technology and relative prices in influencing demand; be able to explain the differences between the rates of growth of demand for different products.
Independent Study - College of Wooster Research (2023-2024) FDI, Culture, Glo...AntoniaOwensDetwiler
"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
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Seminar on gender diversity spillovers through ownership networks at FAME|GRAPE. Presenting novel research. Studies in economics and management using econometrics methods.
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Abhay Bhutada, the Managing Director of Poonawalla Fincorp Limited, is an accomplished leader with over 15 years of experience in commercial and retail lending. A Qualified Chartered Accountant, he has been pivotal in leveraging technology to enhance financial services. Starting his career at Bank of India, he later founded TAB Capital Limited and co-founded Poonawalla Finance Private Limited, emphasizing digital lending. Under his leadership, Poonawalla Fincorp achieved a 'AAA' credit rating, integrating acquisitions and emphasizing corporate governance. Actively involved in industry forums and CSR initiatives, Abhay has been recognized with awards like "Young Entrepreneur of India 2017" and "40 under 40 Most Influential Leader for 2020-21." Personally, he values mindfulness, enjoys gardening, yoga, and sees every day as an opportunity for growth and improvement.
2. Costs of Production
Short run Cost Curves
• Cost curves show the minimum cost of producing various
levels of output
• Both explicit and implicit costs are included
• Explicit costs refer to the actual expenditures of the firm
to purchase or hire the inputs it needs
• Implicit costs refer to the value of inputs owned by the
firm and used by the firm in its own production process
• The value of these owned inputs should be imputed or
estimated from what they could earn in their best
alternative use
3. Costs of Production
Short run Cost Curves
Short run
• In the short run, one or more (but not all) factor(s) of
production are fixed in quantity
• In the short run there are total fixed costs, total variable
costs and total costs
Total fixed costs (TFC) are the costs that the firm incurs in the
short run for its fixed inputs
These are constant regardless of the level of output and of whether it
produces or not
An example of TFC is the rent that a producer must pay for the factory
building over the life of a lease
4. Costs of Production
Short run Cost Curves
• Total variable costs (TVC) are costs incurred by the
firm for the variable inputs it uses
• These vary directly with the level of output and are zero
when no output is produced e.g. raw material costs, labour
costs
• Total costs (TC) are equal to the sum of total fixed costs
and total variable costs
• Though total Costs are very important, average costs are
even more important in the short-run analysis of the firm
5. Costs of Production
Short run Average Cost Curves
• The short run per unit costs that we consider the average
fixed costs, the average variable cost and the average cost
• Average fixed cost (AFC) equals total fixed costs divided
by output
• Average variable cost (AVC) equals total variable costs
divided by output
• Average cost (AC) equals total costs divided by output
(also equals AFC plus AVC
• Marginal Cost (MC) equals the change in TC, or the
change in TVC per unit change in output
8. Long Run Costs
•In the long run, there are no fixed factors, and a
firm can build a plant of any size
•Once a frim has constructed a particular plant, it
operates in the short run
•A plant size can be represented by its short run
average cost (SAC) curve
9. Long Run Costs
•Larger plants can be represented by SAC curves
which lie further to the right
•The LAC curve shows the minimum per unit costs of
producing each level of output when any desired
plant can be built
•The LAC curve is thus formed from the relevant
segments of the SAC curves
10. Long Run Costs
• When we sketch these 5 SAC curves on the same set of
axes, we can derive the LAC
11. Long Run Costs
From 3 to 5.5 units of output it should build the larger plant
given by SAC2 etc.
Note that the firm could produce 4 units with plant 1 but at
a higher cost than with plant 2
To produce up to 3
units of output the
firm should utilize
plant 1 (given by
SAC1)
12. Long Run Costs
The irrelevant portions
of the SAC curves are
dashed
The undashed portions
form the LAC curve
So the LAC curve is obtained by joining points A, B, C, D, E, F,
G, H, M, N and R
By drawing many more SAC curves, we would get a smoother
LAC curve
13. Long Run Costs
At point F on the LAC
curve, the firm would
be operating at its
optimum rate of
output
To produce outputs less than 7 units (point F) the firm would
underutilize its potential, i.e . Produce less than the optimum
rate of output with a smaller than the optimum scale of plant
in the long run
14. Long Run Costs
If the firm were
utilizing the plant
indicated by SAC1
curve at point B, and
wanted to expand
output from 2 - 4 units
In the short run it would have to produce the optimum rate
of output with plant 1, but in the long run the firm would
build a larger scale plant SAC2 and operate at point D
Plant 2 is smaller than the optimum scale of plant
15. Long Run Costs
To produce more than
seven units of output
per time period, the
firm would overutilize
(be larger than
optimum) its potential
The firm may know the approximate shape of the alternative
SAC curves either from experience or from engineering
studies
16. Long Run Costs
•While the shapes of the SAC and the LAC curve are
U-shaped the reason for their shapes is quite
different
•The SAC curves decline first, but eventually rise
because of the operation of the law of diminishing
returns (resulting from the existence of fixed inputs
in the short run)
•In the long run there are no fixed inputs, and the
shape of the LAC is determined by economies and
diseconomies of scale
17. Long Run Costs
•As output expands from very low levels, increasing
returns to scale cause the LAC curve to decline
initially
•But as output becomes greater and greater
diseconomies of scale may become prevalent,
causing the LAC to start rising
18. The Long Run Marginal Cost Curve
•Long run marginal cost (LMC) measures the change in
the long run total cost (LTC) per unit change in output
•The LTC for any level of output can be obtained by
multiplying output by the the LAC level of output
•By plotting the LMC values midway between the
successive levels of output and joining these points we
get the LMC curve
•The LMC curve is U-shaped and reaches its minimum at
the point before the LAC curve reaches the minimum
point
•The rising portion of the LMC goes through the lowest
LAC curve.
20. The Long Run Marginal Cost Curve
•Note that when the LAC is declining, the LMC curve is
below it
•When the LAC is rising the LMC is above it
•When the LAC is at its minimum point LMC=LAC
•The reason is that for the LAC to fall, the addition to the
LTC to produce one more unit of output (LMC) must be
less than the previous LAC
•Similarly, for the LAC to rise, the addition to LTC to
produce one more unit of output (LMC) must be greater
than the previous LAC
•For LAC to remain unchanged, the LMC must equal the
LAC
21. The Long Run Marginal Cost Curve
Technological Progress
•Refers to an increase in the productivity of inputs
and can be represented by a shift toward the origin
of the isoquant referring to any level of output
This means that
•any level of output can be produced with fewer
inputs, or
•more outputs can be produced with the same inputs
22. The Long Run Marginal Cost Curve
Neutral technological progress
The figure shows neutral technological
progress.
Here technological progress increases
MPK and MPL in the same proportion
Here MRTSLK = MPL/MPK = the slope of
isoquant remains constant at point E1
and E2 along the original K/L=1 ray
Q=100 can now be produced with 2L
and 2K instead of 4L and 4K
23. The Long Run Marginal Cost Curve
K-based technological progress
The figure shows K-using technological
progress.
Here technological progress increases
MPK proportionately more than MPL
The absolute slope of the isoquant
declines as it shifts towards the origin
along the K/L=1 ray.
24. The Long Run Marginal Cost Curve
L-based technological progress
The figure shows L-using technological
progress.
Here technological progress increases
MPL proportionately more than MPK
The absolute slope of the isoquant
increases as it shifts towards the origin
along the K/L=1 ray.
25. The Average Revenue Curve
•When a firm can sell all its extra output at the same price
AR curve will be a straight line on a graph
The marginal revenue
per unit from selling
extra unit must be the
same as the average
revenue
26. The Average Revenue Curve
If the price per unit must be cut in order to sell more
units, then the marginal revenue per unit obtained from
selling extra unit will be less than the previous price per
unit In other words, when the AR is
falling as more units are sold,
the MR must be less than the
AR
This figure is very important in
the future discussions
28. Profit
• Profit is total revenue minus total cost
• 𝜋 = 𝑇𝑅 − 𝑇𝐶
Profit Maximization
• As a firm produces and sells more units, its total costs will
increase and its total revenues will also increase
• Provided the extra cost of making an extra unit is less than
the extra revenue obtained from selling it, the firm’s profits
will increase by making and selling that extra unit
• If the extra cost of making that extra unit of output exceeds
the extra revenue obtained from selling it, profit declines
• Profit is maximized when MR = MC
29. Profit Maximization
• If MC is less than MR profits will be increased by making and selling more
• If MC is greater than MR, profits will fall if more units are made and sold
• If MC = MR, the profit-maximizing output has been reached, and so this is the
output quantity that a profit maximizing firm will decide to supply
30. Breakeven Point
• Breakeven occurs where total revenue equals total cost, and
therefore average revenue equals average cost
• We can illustrate graphically
31. Market Structure
• Market structure is the way the buyers and sellers align
in the market
• It depends especially on the number of buyers and
sellers and the product that is offered in the market
• Considerations of the freedom of entry and exit are
important as they determine the degree of
competition in the market
• Issues of information flow in the market are important
also, as they influence the decisions of the buyers
32. Perfect competition
A market is said to be perfectly competitive if
1. There are a great number of sellers and buyers of the
commodity, The action of an individual cannot affect
the price of the commodity
2. The products of all firms in the market are
homogeneous
3. There is perfect mobility of resources
4. Consumers, resource owners and firms have perfect
knowledge of the present and future prices and costs
5. There is freedom of entry and exit
33. Perfect competition
Explanation of the Characteristics
1. Many buyers and sellers
• Each seller or buyer is too small in relation to the
market to be able to affect the price of the commodity
by his/her own actions
• A change in output of a single firm will not at all affect
the market price of the commodity
• Similarly each buyer of the commodity is too small to
be able to extract from the seller such things as
quantity discounts and special credit terms
34. Perfect Competition
Explanation of characteristics
2. The product of each firm is homogeneous, identical
and standardized
• The buyer cannot distinguish between the output of
one firm and that of another firm
• So the buyer is indifferent as to the particular firm from
which to buy
• This refers not only to the physical characteristics of
the commodity but also the environment in which the
purchase is made
35. Perfect Competition
Explanation of characteristics
3. There is perfect mobility of resources
• Workers and other inputs can easily move
geographically and from one job to another, and
respond very quickly to monetary incentives
• No input required in the production is monopolized by
its owners or producers
4. Perfect knowledge of prices, cost and quality
• Consumers will not pay a higher price than necessary
for the commodity
36. Perfect Competition
Explanation of characteristics
4. Perfect knowledge
• Price differences will be eliminated quickly and single
price will prevail throughout the market
• Resources are sold to the highest bidder
• With the perfect knowledge of present and future
prices and costs, producers know exactly how much to
produce
37. Perfect Competition
Explanation of characteristics
5. Freedom of Entry and Exit
• In the long run firms can enter and leave the industry
without difficulty
• There are no patents or copyrights
• Big amounts of capital are not necessary to enter the
industry
• Established firms do not have any lasting cost
advantage over new entrants because of experience or
size
38. Perfect Competition
Perfect Competition in the Real world
• Perfect competition as defined above has never really
existed
• The closest we may have come to satisfying the first
three assumptions is the market for such agricultural
commodities as wheat and maize
Theoretical Importance
• The theory does give us some very useful explanations
and predictions of many real-world economic
phenomena when we come close to the characteristics
40. Perfect Competition
Consequences of Perfect competition
• The price of the commodity is determined only by the
intersection of market demand curve and market
supply curve for the commodity
• The perfectly competitive firm is a price taker and can
sell any amount of the commodity at the established
price
41. Perfect Competition
Demand Curve of Perfectly competitive Firm
d is infinitely elastic, given by a horizontal line at the
market equilibrium price
42. Perfect Competition
A certain car manufacturer regards his business as highly
competitive, because he is keenly aware of his rivalry with
the other few car manufacturers in the market
Like the other car manufacturers, he undertakes vigorous
advertising campaigns seeking to convince potential
buyers of the superior quality and better style of his cars
and reacts very quickly to claims of superiority by rivals. Is
this the meaning of perfect competition from the
economist point of view? Explain.
43. Perfect Competition
Short Run Equilibrium of the Firm
• Total profit = Total Revenue – Total costs
• Total profits are maximized when the difference
between the total revenue and total cost is the greatest
• We can use the total approach to define the profit
maximizing output level
• The following table illustrates the point
44. Perfect Competition
Short Run Equilibrium of the Firm
• Quantity times price gives
us Total Revenue
• Total Revenue – total costs
gives us the total profit
• Total profits are
maximized at Q=650
where Total profits are
1690$
45. Perfect Competition
Short Run Equilibrium of the Firm
Graphically
• Total Revenue is a positively
sloped straight line through
the origin since P is constant
• At Q=100 the firm maximizes
losses
• At q=300 the firm breaks even
• At Q=650 the firm maximizes
total profits – TR and TC same
slope
46. Perfect Competition
Short Run Equilibrium of the Firm Marginal approach
• It is more useful to analyse the short-run equilibrium of
the firm with the marginal revenue-marginal cost
approach
Recall:
• Marginal Revenue (MR) is the change in total revenue
for one-unit change in quantity sold.
• Thus the MR equals the slope of the TR curve
• In perfect competition, P is constant for the firm
• So MR = P
47. Perfect Competition
Short Run Equilibrium of the Firm Marginal Approach
• The marginal approach tells us that the perfectly
competitive firm maximizes its short run total profits at
the output level, where MR or P equals marginal cost
(MC) and MC is rising.
• Here the firm is in its short run equilibrium, or the best,
or the optimum level of output
49. Perfect Competition
Short Run Equilibrium of the Firm Marginal Approach
ti
• The optimum level
of output in the
perfectly competitive
firm is given by point
D’ where MR=MC
and MC is rising.
• At this point the firm
is maximizing its
total profits ($1700)
and is in short run
equilibrium
50. Perfect Competition
Short Run Equilibrium of the Firm Marginal Approach
ti
• If the firm raises its
price it will lose its
all its customers
• If the firm lowers
the price it will
reduce its TR
unnecessarily, since
it can sell any
amount at the
market price of $8
per unit
51. Perfect Competition
Short Run Equilibrium of the Firm Marginal Approach
ti
• Note that at the level
of output of 600 the
Average profit is the
maximum
• But the firm is
interested to maximize
its total profit, not
average
52. Perfect Competition
Short Run Equilibrium of the Firm Marginal Approach
ti
a
• Note also that at A’,
MR=MC=P at 100 units
of output
• At this level of output,
however, the firm
maximizes total losses
53. • The firm will be making abnormal profit since AR is higher than AC
• The shaded area in a) will be the excess profit
• In the long run, due to entry and exit, the firm will be making normal profit
Profit Maximization – Perfect Competition
• In the
short run
the firm
will set
MR=MC
and the
resultant
output
will be Q
54. Monopoly
Monopoly Defined
• Pure monopoly refers to the case where
1. There is a single firm selling the commodity
2. There are no close substitutes for the commodity
3. Entry into the industry is very difficult or
impossible
4. If we further assume that the monopolist has
perfect knowledge of present and future prices
and costs, we have perfect monopoly
55. Monopoly
Conditions giving rise to monopoly
1. Control of the entire supply of raw materials
required to produce the commodity
2. Ownership of a patent which precludes other
firms from producing the same commodity
3. Government action to establish a sole producer of
a good or service
4. Natural monopolies: this is common in cases of
public utilities such as water supply, electricity
56. Monopoly
Are cases of pure monopoly common today
• Pure monopoly exists in public utilities, even
though they do not fulfill all the characteristics
Forces limiting Monopoly power
• Monopolist faces indirect competition for the
consumer’s money from other commodities
• Although there are no close substitutes for the
commodity sold by the monopolist, but those
other goods that attract the money to other uses
can be taken to be substitutes
57. Monopoly
Demand, Marginal Revenue and Elasticity
• In this table, columns (1) and
(2) give the demand schedule
faced by the monopolist
• The TR values are obtained
by multiplying each value of
(1) by the corresponding
value in (2).
• The MR values of (4) are
obtained from the difference
between successive TR values
58. Monopoly
Demand, Marginal Revenue and Elasticity
• The D and MR schedules facing
the monopolist are plotted in
this figure.
• Note that MR
• Is positive as long as demand
is elastic
• Is zero when e=1
• Is negative when e<1
• This is because when D is
elastic, a reduction in the
commodity price will cause TR
to increase so MR is positive
59. Short run Equilibrium under Pure monopoly
Total Approach
• The short run equilibrium output of the monopolist is the
output at which either total profits are maximized or total
losses are minimized
61. Monopoly
Short run Equilibrium – Marginal approach
• The short-run equilibrium level of output for the
monopolist is the output at which MR=MC and the
slope of the MR is smaller than the slope of MC
curve (provided that P≥AVC)
62. Monopoly
Demand, Marginal Revenue and Elasticity
• Here the monopolist maximizes
total profits when producing
and selling 2.5 units of output
at the price of $5.5
• At this level of output
MR=MC=$3, while MR is falling
and MC is rising
• So the negative slope of MR
curve is smaller than the
positive slope of MC curve
• As long as MR>MC, it pays for
the monopolist to expand Q
63. Monopoly
Demand, Marginal Revenue and Elasticity
• The optimum level of output for
the monopolist is given by the
point where MC curve intersects
with MR curve from below
• Note that the best level of
output is associated with
minimum SAC and smaller than
the output level at which
P=SMC
64. Monopolistic Competition
• Monopolistic Competition is the market structure which
has the following characteristics:
1. There are many buyers and many sellers
2. The products sold are closely related but not identical
3. There is freedom of entry and exit in the long run
• Monopolistic competition is very common in retail and
service sector of our economy
Examples
• Petrol stations, different medicine, different brands of
soap and detergents, cigarette brands, mobile phone
providers etc.
65. Monopolistic Competition
• As the name suggests, in this market structure
there is a competitive element as well as the
monopolistic element
• The competitive element results from the presence
of many sellers so that the activities of each have
no perceptible effect on the other firms in the
market
• The monopolistic element results from the fact
that the products are differentiated products
66. Monopolistic Competition
• Since the products are differentiated, we cannot
define the market demand curve and market
supply curve
• We do not have a single equilibrium price, rather a
cluster of prices, each for the different product
produced by each firm.
• Thus whatever graphical analysis that we have is
confined to the typical or representative firm
67. Monopolistic Competition
Implication of the characteristics
• Because of product differentiation, sellers have
some degree of control over the prices they
charge and thus face a negatively sloped demand
curve
• However, the existence of many close substitutes
severely limits the sellers’ “monopoly” power, and
results in a highly elastic demand curve
• MR curve will lie below its demand curve
68. Monopolistic Competition
Short-run Equilibrium
• The graph shows a highly
price elastic demand curve
faced by a typical
monopolistic competitor
and the corresponding MR
curve
• In the short run, the best
level of output is where
MR=MC given by point E
• Here P=$9 and Q=6 while
SAC = $7 (point B)
70. Monopolistic Competition
Long-run Equilibrium
• If in the short run the firms in monopolistically
competitive market earned abnormal profits in the
short run, firms will enter the industry in the long run
• This shifts each firm’s demand curve down (since
each firm now has a smaller share of the market)
• This goes on until all abnormal profits are squeezed
out
• The opposite occurs if firms suffered losses in the SR
71. Monopolistic Competition
Long-run Equilibrium • Here d shifts
down to d’ so as
to be tangent to
LAC curve at the
output level of 4
units
• Here, MR’=LMC
and the firm
breaks even in
the LR
72. Oligopoly
• Oligopoly is the market organization in which there
are few interdependent sellers of a commodity
• If we have only two sellers we have duopoly
• If the product is homogeneous, such as steel,
copper, cement, we have a pure oligopoly
• This is the most prevalent form of market
organization in the manufacturing sector of
modern economies
• They arise because of economies of scale and
control of source of raw material and patents
73. Oligopoly
Interdependence of Oligopolies
• This is the most important characteristic of oligopoly
differentiating it from other market structures
• The interdependence is the natural result of
fewness
• When one lowers its price the other reacts
• When one advertises successfully, the other follows
• When on introduces a better model the other reacts
74. Oligopoly
Kinked Demand Curve • The demand curve facing
the oligopolist is CEJ and
has a kink at the
prevailing level of sales of
200 units
• Above the kink d is more
elastic than below
• MR is CFGN with CF and
GN
• MC will be anywhere
within the discontinuous
section
75. Oligopoly
A Cartel
A cartel is a formal organization of producers within
the industry that determines the policies for all the
firms in the cartel with a view of increasing total
profits for the cartel
Types of Cartel:
1. Centralized cartel: Perfect collusion, where the
cartel makes all decisions for member firms
2. Market sharing model: member firms agree upon
the share of the market each is to have