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This occurs when a firm or consumer has no option but to accept the price set by the market. When a firm is a price taker – it means they have no ability to set a price that they would like to charge. A price taker will lack market power. Conditions for being a price …
Definition: Marginal revenue (MR) is the additional revenue gained from selling one extra unit in a period of time. Marginal revenue (MR) = Δ TR/Δ Q If a firm sells an extra 50 units and sees an increase in revenue of £200. Then the marginal revenue of each extra unit sold is £4 Example of …
Microeconomic topics Consumer and producer surplus Demand Substitute goods Complements Economies of scale Elasticity Price elasticity of demand Cross elasticity of demand Income elasticity of demand Price elasticity of supply Market equilibrium Production possibility frontiers Positive and normative statements Opportunity cost Specialisation and division of labour Market failure Positive externalities – the benefit to a …
Perfect competition – Many firms, freedom of entry, homogeneous product, normal profit. Monopoly – One firm dominates the market, barriers to entry, possibly supernormal profit. Monopoly diagram Oligopoly – An industry dominated by a few firms, e.g. 5 firm concentration ratio of > 50%. Interdependence of firms Oligopoly diagram Collusive behaviour – firms seek to …
Readers Question: What is the role and function of price in the economy? The price of goods plays a crucial role in determining an efficient distribution of resources in a market system. Price acts as a signal for shortages and surpluses which help firms and consumers respond to changing market conditions. If a good is …
Microeconomics is concerned with the economic decisions and actions of individuals and firms. Within the broad church of microeconomics, there are different theories that emphasise certain assumptions and expectations of economic behaviour. The most important theory is neo-classical theory, which places emphasis on free-markets and the assumption individuals are rational and seek to maximise utility. …
Supernormal profit is all the excess profit a firm makes above the minimum return necessary to keep a firm in business. Supernormal profit is calculated by Total Revenue – Total Costs (where total cost includes all fixed and variable costs, plus minimum income necessary for the owner to be happy in that business.) Normal profit …