Check for understanding Chapter 16 Check for understanding

How is the market for corn different than the market for movies How is the market for corn different than the market for movies? How are they similar? Question for the day

When a firm’s demand curve is tangent to its ATC curve, the: Firms economic profit is 0 Firm must be earning economic profit Firm must be incurring economic profit Firm must be operating at an efficient scale

A The answer is…

Suppose the point of tangency that characterizes long-run equilibrium for a MC firm occurs at Q1 units of output. This level of output: Exceeds the level of output at which MR =MC Exceeds the level of output at which MC =ATC Falls short of the level of output at which Price=MC Exceeds the firm’s efficient scale of output

C The answer is…

Which of the following conditions is characteristic of a MC firm in long-run equilibrium: P> MR and P = MC ATC = demand and MR = MC P< MC and demand = ATC P> ATC and demand > MR

B The answer is…

Free response question Professional organizations have been active advocates for regulation to restrict the right of professionals to advertise. Describe what economic incentives might exist for existing professionals to restrict advertising. Free response question

Chapter 14 / 15 Firm Type # of firms Product Differentiation? Entry or Exit into the market? Price Vs. MC? Perfectly Competitive Monopoly Yes, both P = MC Many No No Entry Yes Exit One P > MC Yes, perfect What does it mean when marginal cost is greater than price? How does that relate to market power? Chapter 14 / 15

Imperfect Competition Firm Type # of firms Product Differentiation? Entry or Exit into the market? Price Vs. MC? Monopolistically Competitive Many Yes, both P > MC Yes, some What does this firm type have in common with perfect competition? How does that manifest itself in the market? What does this firm have in common with monopolies? How does that manifest itself in the market? Imperfect Competition Limited Market Power

Know what you know about the graph, what can you tell me about these curves; focus on direction of slope and relation to other curves: Demand Marginal Revenue Average Total Cost Marginal Cost Parts of the Graph

What about Profit? Graphing Interlude

Profit Short Run: Firms can earn economic profit How does this compare to perfect competition and monopolies? Long run: Firms cannot earn economic profit? Why? Profit

Long Run Equilibrium Draw a Perfectly Competitive firm at LRE Draw a Monopoly at LRE How do we know Perfectly Competitive firm is operating at LRE? How do we know Monopoly is operating at LRE? Monopolistically Competitive firms operate very similarly to Perfectly Competitive firms Long Run Equilibrium

Rules about ATC still apply Graphing Interlude

Advertising What is the purpose of advertising? Why do some people think it is bad? Why do people defend it? Advertising

Quality Why Advertise?

Why Advertise? http://www.youtube.com/watch?v=BHaVW_FbFZ8 http://www.youtube.com/watch?v=8rWbg4-dw1g Why Advertise?

Name Brands What does it mean when something is a name brand? Why might they be good (economically)? Why are they bad? Name Brands

For each of the following pairs of firms, explain which firm would be more likely to engage in advertising: A family owned farm or a family owned restaurant A manufacturer of forklifts or a manufacturer of cars A company that invented a very comfortable razor or a company that invented a less comfortable razor Advertising