17 What does the Graph show? Law of Diminishing Marginal Returns As production increases, additional costs increase.Price (monthly bill)Basically for each additional unit produced the company had to hire more people and use more capital, which costs money.140SupplyBenefits > costs120100Benefits < costs(no more production)Therefore, even though the company is taking in more money the returns on each item decrease as a result of increased costs.8060Quantity (of Cell Phone Subscribers)51015202530
20 Position of the Demand Curve? What specific things determine the position of the demand curve?“P.O.I.N.T.”Price of Related Products (Subs & Comps)Outlook (Consumer Expectations)IncomeNumber of consumersTastesSWS
25 Position of the Supply Curve? What specific things determine the position of the supply curve?“G.O. S.P.I.T.”Government ActionsOutlook of Future (by the producer)Size of Industry (# of businesses)Price of Related Product LinesInput CostsTechnologySWS
30 Time and Supply Elasticity A producer of birdhouses notices that the price per unit is rising from $10 to $20.Supply$$20Currently he only has enough resources to make 8 birdhouses. (ie. employees)$10$5Let us see what happens over time.Quantity Supplied12581012... at 3 Months (hired another employee)... at 6 Months (purchased a larger workshop)TIMELINETherefore, supply becomes more elastic over time as a company has more time to adjust to changes in price.Present3 Months6 MonthsInelasticElastic
32 (x marks the spot) This is the perfect price to charge for a good. Equilibrium PricePriceSupplyEquilibriumPriceEquilibrium Price(x marks the spot) This is the perfect price to charge for a good.DemandQuantityEquilibriumQuantity6
43 The 5 conditions of perfect competition 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.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.The agricultural market is the best example of a perfectly competitive market.
44 Perfect Competition too small Each individual firm is to influence prices.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.Generally speaking, wheat is the same per bushel in North Georgia as it is in Florida.
46 Monopolistic Competition The 5 conditions of Monopolistic CompetitionLARGE number of large companies (but fewer than perfect competition).Sellers can influence the price through creating a product identity (more on this later)Products are NOT exactly identical, BUT VERY SIMILAR, so companies use PRODUCT DIFFERENTIATIONHeavy Competition: Firms must remain aware of their competitor’s actions, but they each have some ability to control their own prices.Low Barriers to Entry: harder to get started because of the amount of competition.Monopolistic competition takes its name and its structure from elements of monopoly and perfect competition.
48 Conditions of Monopolistic Competition The point is that firms in Monopolistic Competition must use Product Differentiation & Non-price Competition to sell their products.Non-Price Competition: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.Notice these commercials never mention price.VS
56 Types of MonopoliesTechnological 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.
67 THE TYPES OF BUSINESSES Partnerships (two or more owners who split responsibility of the management of the company)Types of Partnerships: (each has a contract)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 firm’s 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 partner’s 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
76 THE TYPES OF BUSINESSES Corporations:Advantages of Corporations: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.