ANTITRUST Music : Gustav Mahler, Symphony No. 1 (1888) Performed by Bavarian Radio Symphony Orchestra, Conductor: Rafael Kubelik (1968)
FACTORS AFFECTING DEMAND PERSONAL TASTE INCOME PRICE OF COMPLEMENTARY GOODS PRICE OF SUBSTITUTES
DEMAND
TYPES OF PRODUCER COSTS FIXED v.VARIABLE COSTS TOTAL v. AVERAGE COSTS MARGINAL COST
FIXED v. VARIABLE COSTS FIXED COSTS: DO NOT VARY IN SHORT RUN VARIABLE COSTS
FIXED v. VARIABLE COSTS FIXED COSTS: DO NOT VARY IN SHORT RUN VARIABLE COSTS: VARY WITH LEVEL OF PRODUCTION
TOTAL v. AVERAGE COST TOTAL COST: ALL COSTS ASSOCIATED WITH PRODUCT LINE AVERAGE COST
TOTAL v. AVERAGE COST TOTAL COST: ALL COSTS ASSOCIATED WITH PRODUCT LINE AVERAGE COST: MEAN COST PER ITEM PRODUCED
TOTAL v. AVERAGE COST TOTAL COST: ALL COSTS ASSOCIATED WITH PRODUCT LINE AVERAGE COST: MEAN COST PER ITEM PRODUCED –AVERAGE TOTAL COST –AVERAGE VARIABLE COST
MARGINAL COST = ADDITIONAL COST OF PRODUCING ONE MORE UNIT
ALL COSTS INCLUDE “NORMAL” PROFIT
SUPPLY CURVE = MARGINAL COST CURVE FOR INDUSTRY AS A WHOLE
SUPPLY & DEMAND
FACTORS AFFECTING SUPPLY CURVE TECHNOLOGICAL CHANGE
FACTORS AFFECTING SUPPLY CURVE TECHNOLOGICAL CHANGE INPUT PRICES
SUPPLY & DEMAND
PRODUCERS’ GOAL MARGINAL REVENUE = MARGINAL COST
PRODUCERS’ GOAL IN COMPETITIVE MARKET MARGINAL REVENUE = PRICE = MARGINAL COST
SUPPLY & DEMAND
OPTIMUM CONDITIONS FOR COMPETITIVE EQUILIBRIUM FUNGIBLE PRODUCT SUPPLIERS CAN’T AFFECT EACH OTHERS PRICING/OUTPUT MOBILITY/EQUALITY OF RESOURCE AVAILABILITY GOOD INFORMATION/LOW TRANSACTION COSTS
OPTIMUM CONDITIONS FOR COMPETITIVE EQUILIBRIUM FUNGIBLE PRODUCT SUPPLIERS CAN’T AFFECT EACH OTHERS PRICING/OUTPUT MOBILITY/EQUALITY OF RESOURCE AVAILABILITY GOOD INFORMATION/LOW TRANSACTION COSTS
OPTIMUM CONDITIONS FOR COMPETITIVE EQUILIBRIUM FUNGIBLE PRODUCT SUPPLIERS CAN’T AFFECT EACH OTHERS PRICING/OUTPUT MOBILITY/EQUALITY OF RESOURCE AVAILABILITY GOOD INFORMATION/LOW TRANSACTION COSTS
OPTIMUM CONDITIONS FOR COMPETITIVE EQUILIBRIUM FUNGIBLE PRODUCT SUPPLIERS CAN’T AFFECT EACH OTHERS PRICING/OUTPUT MOBILITY/EQUALITY OF RESOURCE AVAILABILITY GOOD INFORMATION/LOW TRANSACTION COSTS
OPTIMUM CONDITIONS FOR COMPETITIVE EQUILIBRIUM FUNGIBLE PRODUCT SUPPLIERS CAN’T AFFECT EACH OTHERS PRICING/OUTPUT MOBILITY/EQUALITY OF RESOURCE AVAILABILITY GOOD INFORMATION/LOW TRANSACTION COSTS
SUPPLY AND DEMAND
SUPPLY & DEMAND
ELASTICITY (SENSITIVITY TO PRICE CHANGES) % CHANGE IN OUTPUT NECESSITATED BY 1% CHANGE IN PRICE
ELASTICITY > 1 DEMAND IS ELASTIC CONSUMERS RESPONSIVE TO PRICE CHANGES GOOD SUBSTITUTES EXIST
ELASTICITY < 1 DEMAND IS INELASTIC CONSUMERS UNRESPONSIVE TO PRICE CHANGES FEW GOOD SUBSTITUTES
TOTAL REVENUE/DEMAND
MONOPOLY: PROBLEMS HIGH PRICES LOWER OUTPUT WEALTH TRANSFER (?) DEADWEIGHT LOSS
BARRIERS TO ENTRY LIMITED ACCESS TO KEY RESOURCES GOVERNMENT REGULATION HIGH FIXED COSTS BRAND LOYALTY
MONOPOLY: PROBLEMS HIGH PRICES LOWER OUTPUT WEALTH TRANSFER (?) DEADWEIGHT LOSS PREDATORY CONDUCT RENT-SEEKING BEHAVIOR