All MICROECONOMICS DIAGRAMS -
year 1
Production Possibility frontier Information haps -
over estimating benefits Consumer Surplus
" atti.
market demand would be lower
Opportunity Cost A +
B =
20 Capital goods if consumers had better info Individuals may have imperfect
output CIB MPC
Of information about their own private
-unattainable
:it
capital
o
benefits If they If
they had fuller info
goods
.
④
8
7o
themselves the MPB
...........
curve
---------
on the benefits to ,
:
all efficient would shift lower
so
=
smaller canilibriumanantis
uposlimited infos
iness
info ( Q2
underproducing MPB (fuller
Higher supply costs An t in market demand
80 100 output of Q -↑ in market price - I
consumer surplus
consumer goods
:. ad in consumer surplus ABC to DBE ABC to GH1
Producer Surplus Negative Externalities
P P
its" It is
Si If MSC pivots
MSC
CIB MPC
-
E
MPC
away from
? C
"
. then the marginal
external cost of
Q Qu Q
MPB MSB=
extra output is
↓ supply dinprice Any in market demand ↑ price Q
:
costs causes SOL MGO
-
equilibrium quantity
+
quantity- ↑ producer surplus
: producer surplus ↑ ADB to FEC ABC to DEC
, All MICROECONOMICS DIAGRAMS -
Year 2
I I
Sales Revenue Maximisation Sales Maximisation Price takers and price makers
Average and Marginal Cost Curves
↳ AR =
AC -
at this output
normal profits are made ↳ ↳ have
CIB CIB
accept ruling market price some pricing power MC
"J
sell each unit at the same price will face a downward AR curve
↳
AC
~· Lum
& AR =
MR MR will be below AR
ahsi rer?
%" /wa
AC
i Pi
.............. expands
Y
191 AR AR AR
↑
⑧
Q .
I
Total Revenue MR
e maximisation
Revenue
profit
maximisation
P =
MC
LRAC curve Diseconomies of Scale -
impact on firms Allocative Efficiency AR
=
MC
Ac Price
CIB
em o sa? LRAC Producing an output beyond the minimum
R supply Allocative efficiency is at
&
efficient scale
E
it at
Ge leads to
,
an output which maximises
an *
consumer
--
LRAC
But
lower total Diseconomies of
pr Rising LRAC profits total consumer welfare
:
6 . .
i
.
↳
re
-
means diseconomies scale causes unit costs to be higher
efficiency surplus Demand
of scale
⑧- than at output Q1 At the market equilibrium price
⑧
AR
-
,
i i Q
consumer and
is maximised
producer surplus
Qu Q2 Q3 & a Quantity . output Beconomic welfare
is maximised .
perfect Competition SR
Long Run Adjustment Shut-down Price
market supply
CIB
and DB MC
C(B ,
P
=
P Si
↓
demand
-
S
MC
-a
MC
↓
Se
S
AC
---------
AR
=
MR
P, P, ,
Pz
,
. -
- - - -
------- - - - - - - - - --
- -
P2
------------- -
⑧
AR
=
MRe
E
Q
Di
-
P1 :
Price =
ang cost ,
normal profits made
Qu Q ① Q
P2 Price
arg variable cost
:
=
characteristics :
Many buyers and sellers :
Perfect knowledge ↑ new entrants into market P =
min AVC is the shut down price for a
competitive firm in SR .
No barriers of entry + exit :
Homogenous ... ↑ supply =
Pd =
normal profits
firms are profit maximisers
I
Monopolistic Competition
SR LR
CIB CIB
In Characteristics
: ~
C
SNP M the long run equilibrium ,
:
Large numbers of
buyers and sellers
AC
AC
revenue is tangential No barriers to entry + exit
average
Pz
.............. to
AC-meaning normal profits Non-homogenous goods
j
AR
AP2
are being made b P AC
=
MR Q
MP2
oligopoly -> there are a few firms that dominate the market Monopoly :Pure -
Single supplier of a
good/supplier
firm with 25 market share t ensure consumee
and have the
majority of market share .
Legal -> A over % aren
Characteristics Single Seller Natural Monopoly
P
:
CIB
utility industries
s
occur in
usually
Characteristics few firms dominate market SNP
high barriers to entry
:
regulated by the got
:
are
W
+
W
.
often in the form of max prices
-
.
·
Product differentiation Al Differentiated products MC MR
produce
=
protects SNP
-
Interdependence of firms
· ↳ :
imperfect information *
-o
c . .
- ----. .....
LRAC
↑
.
see LRMC
:
high barriers of
entry +
exit :
Profit maximisation AR
MR a
MR
:
Non-price competitive prices pointless to encourage comp as Al would
be raised in industry .
vague objectives (profit max isn't sole objective) Sie railways (
.
year 1
Production Possibility frontier Information haps -
over estimating benefits Consumer Surplus
" atti.
market demand would be lower
Opportunity Cost A +
B =
20 Capital goods if consumers had better info Individuals may have imperfect
output CIB MPC
Of information about their own private
-unattainable
:it
capital
o
benefits If they If
they had fuller info
goods
.
④
8
7o
themselves the MPB
...........
curve
---------
on the benefits to ,
:
all efficient would shift lower
so
=
smaller canilibriumanantis
uposlimited infos
iness
info ( Q2
underproducing MPB (fuller
Higher supply costs An t in market demand
80 100 output of Q -↑ in market price - I
consumer surplus
consumer goods
:. ad in consumer surplus ABC to DBE ABC to GH1
Producer Surplus Negative Externalities
P P
its" It is
Si If MSC pivots
MSC
CIB MPC
-
E
MPC
away from
? C
"
. then the marginal
external cost of
Q Qu Q
MPB MSB=
extra output is
↓ supply dinprice Any in market demand ↑ price Q
:
costs causes SOL MGO
-
equilibrium quantity
+
quantity- ↑ producer surplus
: producer surplus ↑ ADB to FEC ABC to DEC
, All MICROECONOMICS DIAGRAMS -
Year 2
I I
Sales Revenue Maximisation Sales Maximisation Price takers and price makers
Average and Marginal Cost Curves
↳ AR =
AC -
at this output
normal profits are made ↳ ↳ have
CIB CIB
accept ruling market price some pricing power MC
"J
sell each unit at the same price will face a downward AR curve
↳
AC
~· Lum
& AR =
MR MR will be below AR
ahsi rer?
%" /wa
AC
i Pi
.............. expands
Y
191 AR AR AR
↑
⑧
Q .
I
Total Revenue MR
e maximisation
Revenue
profit
maximisation
P =
MC
LRAC curve Diseconomies of Scale -
impact on firms Allocative Efficiency AR
=
MC
Ac Price
CIB
em o sa? LRAC Producing an output beyond the minimum
R supply Allocative efficiency is at
&
efficient scale
E
it at
Ge leads to
,
an output which maximises
an *
consumer
--
LRAC
But
lower total Diseconomies of
pr Rising LRAC profits total consumer welfare
:
6 . .
i
.
↳
re
-
means diseconomies scale causes unit costs to be higher
efficiency surplus Demand
of scale
⑧- than at output Q1 At the market equilibrium price
⑧
AR
-
,
i i Q
consumer and
is maximised
producer surplus
Qu Q2 Q3 & a Quantity . output Beconomic welfare
is maximised .
perfect Competition SR
Long Run Adjustment Shut-down Price
market supply
CIB
and DB MC
C(B ,
P
=
P Si
↓
demand
-
S
MC
-a
MC
↓
Se
S
AC
---------
AR
=
MR
P, P, ,
Pz
,
. -
- - - -
------- - - - - - - - - --
- -
P2
------------- -
⑧
AR
=
MRe
E
Q
Di
-
P1 :
Price =
ang cost ,
normal profits made
Qu Q ① Q
P2 Price
arg variable cost
:
=
characteristics :
Many buyers and sellers :
Perfect knowledge ↑ new entrants into market P =
min AVC is the shut down price for a
competitive firm in SR .
No barriers of entry + exit :
Homogenous ... ↑ supply =
Pd =
normal profits
firms are profit maximisers
I
Monopolistic Competition
SR LR
CIB CIB
In Characteristics
: ~
C
SNP M the long run equilibrium ,
:
Large numbers of
buyers and sellers
AC
AC
revenue is tangential No barriers to entry + exit
average
Pz
.............. to
AC-meaning normal profits Non-homogenous goods
j
AR
AP2
are being made b P AC
=
MR Q
MP2
oligopoly -> there are a few firms that dominate the market Monopoly :Pure -
Single supplier of a
good/supplier
firm with 25 market share t ensure consumee
and have the
majority of market share .
Legal -> A over % aren
Characteristics Single Seller Natural Monopoly
P
:
CIB
utility industries
s
occur in
usually
Characteristics few firms dominate market SNP
high barriers to entry
:
regulated by the got
:
are
W
+
W
.
often in the form of max prices
-
.
·
Product differentiation Al Differentiated products MC MR
produce
=
protects SNP
-
Interdependence of firms
· ↳ :
imperfect information *
-o
c . .
- ----. .....
LRAC
↑
.
see LRMC
:
high barriers of
entry +
exit :
Profit maximisation AR
MR a
MR
:
Non-price competitive prices pointless to encourage comp as Al would
be raised in industry .
vague objectives (profit max isn't sole objective) Sie railways (
.
