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ECON-2086EL Chapter Notes - Chapter 5: Marginal Cost, Trade Union, Pricing Strategies

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School
Laurentian
Department
Economics / Science Èconomique
Course
ECON-2086EL
Professor
Bougrine

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Document Summary

A firm takes into account explicit and implicit costs of production to set their prices. However, it all depends on the market and its conditions when choosing a set price for the product. The amount of suppliers, the homogeneity of the products, and the demand all play roles in what prices the producer can charge. Below you will find the different market structures and how they affect the pricing of a good/service (perfect competition; monopoly; monopolistic competition; and oligopoly) In a perfectly competitive market, all the producers (many) are producing and indistinguishable good. Entrance and exit to the market is near costless. The firm does not control the price as it is set by the market. Demand controls the price and supply is an aggregation of all the producers in the market. More demand increases price, more firms enter the market, and the price lowers again as supply increases.

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Related Questions

1. When a profit-maximizing firm produces, they will be producing at that output at which marginal cost = marginal revenue:

  • all of the time
  • some of the time
  • on rare occasions
  • none of the time

2. Economics Profit is:

  • the same as accounting profit
  • sales minus explicit costs and implicit costs
  • sales minus variable costs and fixed costs
  • opportunity cost only

3. A market structure with so many firms that no one firm has any influence over price, and firms produce an identical product is called:

  • monopoly
  • oligopoly
  • perfect competition
  • monopolistic competition

4. Which of the following is NOT a characteristic of a perfectly competitive market?

  • identical products
  • perfect mobility
  • perfect knowledge
  • price maker

5. The demand curve in a perfectly competitive market is perfectly elastic.

  • true
  • false

The terms price maker, price setter, and price searcher are all meant to imply the same thing, which is

Select one:

a. firms operating in a perfectly competitive market have pricing power.

b. it is impossible for any firm to have pricing power.

c. a firm operating in any market but perfect competition that also determines the quantity it produces and the price at which it sells the products.

d. any firm can determine the price at which it sells a product, but no firm can determine the quantity it produces.

e. a price increase will likely drive every customer for the producer of this product to another product.

In monopoly,

Select one:

a. the number of firms is large.

b. there is ease of entry into the market and exit from the market.

c. the product has many good substitutes.

d. economic profits are zero in the long run.

e. None of these choices.

1- Explain the Law of Demand. What are their assumptions? What are demand curve shifters and what causes them to shift?

2- What is market equilibrium? What might keep the market from moving all the way to that equilibrium point?

3- “Price control can be more effective in the short run than the long run”. Explain. How could price controls affect a firm’s incentive to innovate? Explain.

4- What is price elasticity? Explain. What are various types of elasticity of demand? Explain with examples.

5- Suppose that a producer raises the price of a good from $8 to $15, and the quantity sold drops from 2500 to 400 units. Is the demand for the good is elastic or inelastic?

6- Define and explain perfect competition, monopoly and oligopoly. Why firms do price discrimination?