Basic Terms Revenue = income from sales ($ in) Cost = an expense ($ out) Profit = Revenue – Cost Marginal = Additional from One Unit

Perfect Competition Long Run Economic Profit = Zero Accounting Profit= Total Revenue -Total Explicit Costs Explicit Costs= direct payments made to others examples= rent, utilities, wages, materials

Long Run Economic Profit = Zero Economic Profit= Total Revenue -Total Explicit/Implicit Costs Implicit Costs= opportunity cost/ “profit” required to keep entrepreneur from “exiting” the market examples= using land and equipment to grow wheat instead of corn

Long Run Economic Profit = Zero Economic Profit > Zero –Firms will “enter” the market in the long run Economic Profit < Zero –Firms will “exit” the market in the long run

Long Run Economic Profit = Zero Economic Profit = 0 –called “normal profit”

Perfect Competition Profit Maximization- MR=MC Long-Run Economic Profit = ZERO

Perfect Competition Decisions –Quantity

Monopolistic Competition v. Oligopoly Considerations: # of Firms Market Dominance Geographic Area Barriers to Entry

Monopolistic Competition v. Oligopoly Do the decisions of one firm greatly affect the others firms in the market? Do the decisions of one firm have little/no impact on the market?

Monopolistic Competition v. Oligopoly A Dividing Line 4 Largest Firms control over 40% of the market

Barriers to Entry Think! DeBeers Walmart Coca-Cola Keurig K-Cups Liquor Store (in PA) Continental Airlines

Capital Cost Customer Loyalty Control of Resources Economies of Scale Legal –Patents, copyrights –Government regulation, licensing Barriers to Entry

Think! DeBeers Walmart Coca-Cola Keurig K-Cups Waste Management Continental Airlines

Capital Cost Customer Loyalty Control of Resources Economies of Scale Legal –Patents, copyrights –Government regulation, licensing Barriers to Entry

Algeria Angola Ecuador Iran Iraq Kuwait Libya Nigeria Qatar Saudi Arabia United Arab Emirates Venezuela

OPEC

Oligopoly Terms Duopoly Collude/Collusion Cartel

Organization of Petroleum Exporting Countries

FTC

Denied

Horizontal Merger Two companies in same industry

Vertical Merger Two companies in complimentary industries

Potential Competition Merger

Antitrust Laws Sherman Antitrust Act (1890) –Banned predatory and unfair business practices Clayton Antitrust Act (1914) –Specified unfair practices Interlocking Directories Price Discrimination Exclusive Dealings and Tying Mergers to Destroy Competition Federal Trade Commission (FTC) –Approves mergers and enforces trade regulations

Market Structures Perfect Competition Monopolistic Competition Oligopoly Monopoly