econ

• short run decision
• temporary decision
• christmas stores closing during summer
• R<VC
• P<AVC
• FC doesnt matter

• long run decision
• ex. gm closing plants
• assume the price here is the LR price
• exit if r-fc-vc<0

• restriction of entry by new firms:
• 1) ownership of key resource such as diamond mind
• 2) government created monopolies-legal restriction to entry by new firms such as patents or copyrights or government contracts
• 3) Natural monopolies: is a industry where it is more efficient to have one seller than more than one

• often the case when an industry has very high fixed costs but has very low VC (or MC)
• ATC=TC/Q=(FC+VC)/Q ---> 0=FC/Q=AFC

• downward sloping
• if a monopolist chooses a high price, it sells at a much smaller quantity (a monopolist can choose p or q but never both)

PRICE=AVERAGE REVENUE

• unlike a perfectly competitive firm, a monopolists mr is always less than price
• when a monopolist wants to increase quantity from 1 to 2 price has to be lower

• MOC- a market with a large # of firms, each firm has a slightly differentiated product and there is also free entry and exit
• Like a perfect competition- large # of firms and free entry and exit
• Unlike PC- differentiated market
• Main Feature: a firm faces a downward sloped demand curve which is part of the entire market demand curve for that product
• Demand curve is elastic because if the price gets too high consumers will switch brands
• SR- an existing moc firm acts exactly like a monopolist over its market share
• LR- no change in the # of firms (entry barriers)---->as new firms enter demand curve shifts left till profit=0

• a market with a few firms and entry is restricted
• Concept Ratio (CR) ---> the market share of 4 largest firms in an industry (80%)
• Product could be same or different---> raw materials such as steel, oil
• Unlike any other market, oligopolies decisions have large impacts on other firms because # of firms is very limited

• cooperation-existing firms can "cooperate" or "collude'---->reduce total output, raise price, increase all firms profits
• Self Interest-every firm wants to cheat or defect, most collusions are ineffective because of self interest

a set of actions/strategies that comes to a stable point if each participant is doing the best it can given what competitors are doing

• a process or activity which causes an uncompensated impact on the welfare of the citizens due to actions of an economic agent
• Problem with externality: whenever there is externalities involved in an activity (because of the fact there is no compensation) a free market leads to overproduction/overconsumption or underproduction/underconsumption

vaccinations, education, research and development

PE works through the willingness to pay or the value curve (demand curve)

Social value of vaccinations = private value + lower probability of spreading desease

Increase of a positive externality, a free market left alone tends to underproduce (solution: free vaccinations)

crime, pollution, loud roommates music

Works through supply curve

• EX- a factory in NRV which emits green house gasses--->social cost>private cost
• In this case of a NE, left alone over produces

Regulate emmisions, tax the activity

Private- moral codes, lobby groups (NE), mergers/intergration businesses (PE)

• Public Solutions (government)
• command & rule policies----> outright bans on toxic waste, technological requirement on companies
• market based policies----> the problem with c&r policies is that they involve

• VC=TC-FC
• MC=TC/Q
• Marginal Revenue = (Change in total revenue) divided by (Change in sales)