17 As production increases, additional costs increase. What does the Graph show? Law of Diminishing Marginal Returns Price (monthly bill) Quantity (of Cell Phone Subscribers) Supply Benefits > costs Benefits < costs (no more production) Basically for each additional unit produced the company had to hire more people and use more capital, which costs money. Therefore, even though the company is taking in more money the returns on each item decrease as a result of increased costs.
What specific things determine the position of the demand curve? P.O.I.N.T. 1. Price of Related Products (Subs & Comps) 2. Outlook (Consumer Expectations) 3. Income 4. Number of consumers 5. Tastes Position of the Demand Curve?
What specific things determine the position of the supply curve? G.O. S.P.I.T.G.O. S.P.I.T. Position of the Supply Curve? 1. Government Actions 2. Outlook of Future (by the producer) 3. Size of Industry (# of businesses) 4. Price of Related Product Lines 5. Input Costs 6. Technology
30 Time and Supply Elasticity $20 $ A producer of birdhouses notices that the price per unit is rising from $10 to $20. Currently he only has enough resources to make 8 birdhouses. (ie. employees) Let us see what happens over time. Supply $ Quantity Supplied $5 TIMELINE Present 3 Months6 Months... at 3 Months (hired another employee)... at 6 Months (purchased a larger workshop) Therefore, supply becomes more elastic over time as a company has more time to adjust to changes in price. InelasticElastic
43 The 5 conditions of perfect competition 4)No Barriers to entry. Sellers are free to enter the market, conduct business and free to leave the market. Perfect competition is the opposite of monopoly. Here, any firm can get into the market at very little cost. The agricultural market is the best example of a perfectly competitive market. Suppose there was a market for dandelions. Growing dandelions requires little start-up cost. All you need are dandelion seeds, soil, water, and some sunlight. There is no difference between one dandelion and another, so the market has a similar product.
44 Perfect Competition Each individual firm is to influence prices. Each individual firm is to influence prices. Price becomes fixed to everyone in the industry. Price becomes fixed to everyone in the industry. EXAMPLE: the price of a bushel of wheat is set only by the interaction of supply and demand. too small Generally speaking, wheat is the same per bushel in North Georgia as it is in Florida.
number of large companies (but fewer than perfect competition). 1)LARGE number of large companies (but fewer than perfect competition). Sellers can influence the price through creating a product identity (more on this later) 2)Products are NOT exactly identical, BUT VERY SIMILAR, so companies use PRODUCT DIFFERENTIATION 3)Heavy Competition: Firms must remain aware of their competitors actions, but they each have some ability to control their own prices. 4)Low Barriers to Entry: harder to get started because of the amount of competition. 5)Monopolistic competition takes its name and its structure from elements of monopoly and perfect competition. 46 Monopolistic Competition The 5 conditions of Monopolistic Competition
48 Product DifferentiationNon-price Competition The point is that firms in Monopolistic Competition must use Product Differentiation & Non-price Competition to sell their products. Conditions of Monopolistic Competition Non-Price Competition: Non-Price Competition involves the advertising of a product's appearance, quality, or design, rather than its price. Non-Price Competition involves the advertising of a product's appearance, quality, or design, rather than its price. Advertising to help the consumer believe that this product is different and worth more money. Advertising to help the consumer believe that this product is different and worth more money. VS Notice these commercials never mention price.
56 3) Technological Monopoly: Firm has discovered a new process or product. –Constitution gave government the right to grant technological monopolies. –Patent: 17 years exclusive rights to a developed technology. –Copyright: (Artists and writers) Life plus 50 years. Types of Monopolies
1.) General Partnerships: Partners in a general partnership share equally in both responsibility and liability. 2.) Limited Partnerships: In a limited partnership, only one partner is required to be a general partner. That is, only ONE partner has UNLIMITED personal liability for the firms actions. The remaining partner or partners contribute only money. 3.) Limited Liability Partnerships/Companies (LLP & LLC): In this type of partnership, all partners/companies are limited partners. An LLP functions like a general partnership, except that all partners are limited from personal liability from another partners mistakes. Also the owners are taxed at a personal level, versus the entire company being taxed. FOR THE MIDTERM: DO NOT WORRY ABOUT P.C.s 67 Partnerships (two or more owners who split responsibility of the management of the company) Types of Partnerships: (each has a contract) THE TYPES OF BUSINESSES
1.) Very Little Liability: A corporation is defined as an "entity" because it has a legal identity separate from those of its owners. A corporation pays taxes, may engage in business, make contracts, sue other parties, and gets sued by others. 2.) Many Resources are Available: not only do corporations have more access to physical capital, they have access to human capital (well educated business leaders) 3.) Continues after death of Owner: a corporation will not cease to exist if the owner passes, or retires. 4.) Easy to Raise Money for it: through the sells of stock a company can raise money to fund operations. 76 Advantages of Corporations: Corporations: THE TYPES OF BUSINESSES