This document covers key economic concepts such as scarcity, marginal analysis, and market assumptions. It differentiates between markets and industries, types of competition (perfect, monopolistic, oligopoly, monopoly), and the implications of monopolies. Supply and demand dynamics determine marke...
Oligopoly
–
The
market
is
dominated
by
a
small
number
of
sellers.
Monopolistically
Competitive
markets
have
the
following
characteristics:
• There
are
many
producers
and
many
consumers
in
a
given
market.
• Consumers
perceive
that
there
are
non-‐price
differences
among
the
competitors'
products.
• There
are
few
barriers
to
entry
and
exit.
• Producers
have
a
degree
of
control
over
price
Therefore,
in
theory
monopoly
is
bad
for
the
economy.
Privatisation
of
state
owned
business
with
monopolies
is
assumed
economically
inefficient.
2
, Sam
Adams
ES187
-‐
Introduction
to
Engineering
Business
Management
3. Supply
&
Demand
Curves
Price, P
Supply, S
P0
Demand, D
Q0 Quantity, Q
Demand:
The
Quantity
of
a
product
that
consumers
are
willing
and
able
to
buy
at
a
specific
Price
over
a
given
period
of
time.
Supply: The
Quantity
of
a
product
that
producers
are
willing
and
able
to
make
available
to
the
market
at
a
specific
Price
over
a
given
period
of
time.
Law
of
Supply
&
Demand
determines
Market
Clearing
Price
–
which
is
then
taken
by
each
company.
To
maximise
profits,
a
company
much
match
the
market-‐clearing
price.
TERMINOLOGY
• Costs:
– Total Fixed Costs (TFC): Costs that do not vary with output, Q.
– Total Variable Costs (TVC): Costs that do vary with output Q.
– Total Cost (TC): The sum of fixed and variable costs.
TC = TVC + TFC
– Average Costs (AC): The cost per unit of production. AC = TC / Q
– Marginal Costs (MC): The extra cost of producing one more unit
(per time period) MC = ΔTC / ΔQ
• Revenue:
– Total Revenue (TR): The total earnings per period of time from
the sale of output Q. TR = P x Q
– Average Revenue (AR): The amount the firm earns per unit sold.
AR = TR / Q (= Price, P)
– Marginal Revenue (MR): The extra TR gained by selling one more
unit (per time period). MR = ΔTR / ΔQ
PROFIT
MAXIMISATION
The
total
Costs
curve
is
a
little
more
complicated
as
they
are
made
up
of
fixed
costs
and
variable
costs.
Profit = Total Revenue − Total Costs
3
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