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A natural monopoly occurs when economies of scale are so large that one firm can supply the entire market at a lower average cost than two or more firms.
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Compared to a perfectly competitive market, a monopoly produces less than the socially efficient quantity of output and charges a relatively higher price, hence creates a deadweight loss.
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Perfect price discrimination is difficult to do for the monopolist because the monopolist needs to know maximum willingness to pay of each consumer for each unit purchased.
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1.Collusion 2.Competition
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Collusion is an agreement among firms to charge the same price or decide on quantities in cooperation with each other
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Competition occurs when each producer maximizes its profits by choosing its own price or quantity without consulting other firms.
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1. Rules that determine which actions are allowable 2. Strategies that players employ to attain their objectives in the game 3. Payoffs that are the results of the interaction among the players’ strategies The payoffs in an oligopoly context are the profits earned as a result of a firm’s strategies interacting with the strategies of other firms.
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Nash Equilibrium represents a situation among the interacting firms, each of which chooses their best strategy given the strategies that all the other firms have already been chosen.
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Dominant Strategy: A dominant strategy is the best response strategy for a firm, no matter what strategies other firms use.
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Monopolistic competition is a market structure where there are many firms that sell differentiated products. Each firm has a monopoly over the product it sells, but many other firms make similar products that compete for the same customers.
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Uniform pricing
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Price discrimination.
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A demand curve represents the maximum willingness of consumers to pay the price for each additional unit.
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The monopoly faces a trade-off.
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In order to increase its output by one unit, a monopoly must reduce the price it charges for every unit and this cut in price reduces the revenue on the units it was already selling.
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The output effect and the price effect.
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The output effect: More output is sold, so Q is higher, which tends to increase the total revenue.
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The price effect: The price falls, so P is lower, this tends to decrease the total revenue.
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Individuals may go to credit market to borrow whenever they realize a temporary decline in their current income, assuming that they expect their income to go back to normal later on. Both consumer and business demand more loans as the interest rate decreases and demand less as the interest rate goes up. When we add together the demand of the households and businesses for loanable funds.
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Tax policies applied by the government can affect the price of the capital indirectly. For instance, assume the government decreases the tax rate on firms’ profit if they increase their expenses on capital. Such a policy would effectively lower the price of capital, causing firms to substitute capital for other factors of production and increasing the demand for capital.
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if wages are as low, workers do not want to work that much but firms demand more workers. So, there will be excess demand and the wage will increase. Wage is the equilibrium or market-clearing wage where labor demand is equal to labor supply.
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The interest rate, in macroeconomics, is often determined in the framework of total money supply and total money demand for an economy. However, since we focus on microeconomics, we should rather consider a micro-based theory of interest rate. Specifically, the loanable funds theory of interest explains the interest rate not in terms of the total supply of and demand for money but, rather, in terms of the supply of and demand for funds available for lending and borrowing.
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the demand for a factor of production is called “derived demand”, in the sense that it is derived from the demand and supply interaction in the market for the good or service it is used for.
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The relationship between the factors of production that a firm uses and the output it produces is called a firm’s production function. A typical production function can be expressed as: Q = TP = f (K, L, N) Here, Q stands for Quantity Output and TP stands for Total Product. When talking about production, these two terms can be used interchangeably. K means physical capital, L means labor and N means land (or natural resources).
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The workers have a different decision to make. If a worker chooses to work, s/he earns wages. However, work is (usually) not much fun and s/he gets tired, feels stress and pressure at work.
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