Market Power exists when firms are able to restrict competition to
sustain prices above marginal costs
Market power can exist differentiated and markets are segmented (NIKE
with multiple rival firms if VS ADIDAS/PEPSI VS COKE)
products are
4 Strategies to restrict - Guarding trade secrets
competition: Market - control of an essential resource
strategies (companies) - exclusive contracts and customer lock-in (Coke
pays IU to keep pepsi away, Adidas pays IU for
athletics/2 year cell phone contracts)
- collusion (form cartel and act as monopoly)
(ILLEGAL) (separate businesses coming together
to act as one)
4 Strategies to restrict - Patent or copyright protection (give market
competition: NON- power)
Market strategies - Trade regulations (give domestic firms power)
(government) - Government licensing
- Government or NGO certification
Profit Maximization: Occurs where marginal revenue equals marginal
Optimal sales Target cost MC=MR
If MR > MC . . . then the firm could make a profit by selling one
more unit
If MC > MR . . . then the firm would lose money on selling one
more unit
Profit Maximization: Price is found as markup over costs, where the
Optimal Price markup factor depends on the demand for the
product
, Perfect Price Each consumer is charged a price equal to her
Discrimination willingness top pay
Imperfect Price Groups of consumer are charged different prices
Discrimination
T or F: A firm with market TRUE
power will have a higher
markup of price over
cost when its demand is
inelastic?
When compared to the produce less output & charge a higher price
efficient industry, a firm
w/ significant market
power will....
If a country does not CONSUMER SURPLUS increases more than PS
have a comparative decreases
advantage in producing
a good & opens up to
free trade of the good,
the welfare in the
domestic market
increases b/c....
Relative to charging a increase PRODUCER SURPLUS, as some
single market price, consumer surplus is changed into PS
when movie theaters
charge different prices to
different groups....
The import tariffs that Domestic steel consumers were hurt, while
Pres. Bush placed on domestic steel producers were helped
imported steel likely had
what effect?
sustain prices above marginal costs
Market power can exist differentiated and markets are segmented (NIKE
with multiple rival firms if VS ADIDAS/PEPSI VS COKE)
products are
4 Strategies to restrict - Guarding trade secrets
competition: Market - control of an essential resource
strategies (companies) - exclusive contracts and customer lock-in (Coke
pays IU to keep pepsi away, Adidas pays IU for
athletics/2 year cell phone contracts)
- collusion (form cartel and act as monopoly)
(ILLEGAL) (separate businesses coming together
to act as one)
4 Strategies to restrict - Patent or copyright protection (give market
competition: NON- power)
Market strategies - Trade regulations (give domestic firms power)
(government) - Government licensing
- Government or NGO certification
Profit Maximization: Occurs where marginal revenue equals marginal
Optimal sales Target cost MC=MR
If MR > MC . . . then the firm could make a profit by selling one
more unit
If MC > MR . . . then the firm would lose money on selling one
more unit
Profit Maximization: Price is found as markup over costs, where the
Optimal Price markup factor depends on the demand for the
product
, Perfect Price Each consumer is charged a price equal to her
Discrimination willingness top pay
Imperfect Price Groups of consumer are charged different prices
Discrimination
T or F: A firm with market TRUE
power will have a higher
markup of price over
cost when its demand is
inelastic?
When compared to the produce less output & charge a higher price
efficient industry, a firm
w/ significant market
power will....
If a country does not CONSUMER SURPLUS increases more than PS
have a comparative decreases
advantage in producing
a good & opens up to
free trade of the good,
the welfare in the
domestic market
increases b/c....
Relative to charging a increase PRODUCER SURPLUS, as some
single market price, consumer surplus is changed into PS
when movie theaters
charge different prices to
different groups....
The import tariffs that Domestic steel consumers were hurt, while
Pres. Bush placed on domestic steel producers were helped
imported steel likely had
what effect?
