Economics Marginal Analysis 3.1 – Flashcards
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Perfect Competition
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Large number of buyers & sellers, perfect knowledge, price takers, no barriers to entry/exit, homogeneous product
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Monopoly
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One competitor, virtually unbreakable barriers to entry, can set price or quantity but not both, usually supplies necessities with no close substitute, e.g. KiwiRail
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Duopoly
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Two competitors, very high barriers to entry, some control over price (must watch competitor closely), e.g. Boeing & Airbus
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Oligopoly
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A few competitors, very high barriers to entry, some control over price (must watch competitor closely), aggressive advertising, e.g. Oil companies in NZ
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Monopolistic Competition
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A large number of competitors, weak barriers to entry, very little if any control over price, e.g. dairies
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Perfect Competition
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Many competitors, no barriers to entry (freedom of entry/exit), no control over price (price taker), can sell all they want at the going price but will sell nothing if the price is raised above this, e.g. vegetable growers
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Price Competition
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Attempts to increase the quantity demanded, by lowering price
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Non-price Competition
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Attempts to move the whole demand curve to the right, e.g. competitions, loyalty programs, product differentiation
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Alternate Goals for Business
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Sales maximisation, improve employment in an area, limit pricing
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Marginal Utility
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The extra utility or satisfaction received from consuming the last unit of something or the additional total utility of the last unit consumed
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Law of Diminishing Marginal Utility
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As consumption increases, total utility/satisfaction rises but at a diminishing rate
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Optimum Purchase Rule (Equi-marginal Returns)
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A rational consumer will consume any good or service up to the point where its MU=P but not beyond
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Market Demand Curves
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Are constructed by summing horizontally all individual demand curves
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Law of Diminishing Returns
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As more units of a variable factor (e.g. labour) are added to a fixed factor (e.g. land or capital), total output will at first rise at an increasing rate, then rise at a decreased/diminishing rate, and may eventually fall
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Marginal Cost
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The additional total cost of producing one more unit
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Economics Costs
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Accounting costs plus opportunity costs
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Accounting Costs
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Measurable and verifiable costs
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Marginal Analysis
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The rule for maximising profit or minimising losses is that the most profitable output or smallest loss is where marginal revenue (MR)=marginal costs (MC)
