Sunk Costs; Sunk Costs and Profit-Maximization

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CCI, ICI, DCI: definitions; short run and long run equilibrium following a change in consumer demand (chapter 9)

- Constant - Cost Industry - an industry in which expansions of output does not bid up prices. Long-run avg. production cost per unit remains unchanged and long - run industry supply curve is horizontal.

- Increasing-cost Industry - an industry in which expansion of output leads to higher long-run avg. production costs and the long-run supply curves slopes upward.

- Decreasing-cost Industry- a highly unusual situation in which the long-run supply curve is downward sloping.

Demand curve facing a pure monopoly (Chapter 11)

- Price exceeds MR with downward sloping demand curve.

(Assuming no price discrimination) the relationship between price, marginal revenue, and marginal cost for a firm with monopoly power

Economic efficiency & inefficiency; production is inefficiently low in Chapter 11, but there may be incentives to produce more if price discrimination is feasible

Differences between 1st- 2nd-, and 3rd-degree price discrimination; remaining consumer surplus? (Chapter 12)

- 1st Degree price discrimination (prefect)- a policy in which each unit of output is sold for the maximum price a consumer will pay

- 2nd Degree price discrimination (block pricing) - the use of a schedule of prices such that the price per unit declines with the quantity purchased by a particular consumer.

- 3rd Degree price discrimination (market segmentation) - a situation in whcih each consumer faces a single price and can purchase as much as desired at the price. but the price differs among categories of consumers.

Opportunities for resale (arbitrage) and 3rd-degree price discrimination

- First, the product seller must posses some degree of monopoly power, in the sense of confronting a downward sloping demand curve.

- Second, the seller must have some means of at least roughly approximating the maximum amount buyers are willing to pay for each unit of output.

- Third, the seller must be able to prevent resale, or arbitrage of the product among the market segments.

Price elasticities in different market segments and their role in 3rd-degree price discrimination

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Intertemporal price discrimmination: the role of time and of price elasticity (chapter 12)

- A form of third degree price discrimination in which different market segments are willing to pay different prices depending on the time at which they purchase the good

How to practice two-part pricing

- a form of second-degree price discrimination in which a firm charges consumers a fixed fee per time period for the right to purchase the product at a uniform per-unit price.

Monopolistic competition—characteristics, short-run equilibrium, long-run equilibrium (chapter 13)

- Monopolistic competition is a market characterized by unrestricted entry and exit and a large number of independent sellers producing differentiated products.

- In short-run, a firm in a monopolistically competitive market may make a profit. Attracted by the prospect of profits, new firms enter the market. As entry continues, the demand curve for existing firms shift downward until a zero-profitt, long-run equilibrium is attained.

Oligopoly—characteristics, Stackelberg vs. Cournot; Dominant Firm model; cartels—factors that may weaken them, incentives for firms to cheat

- Oligopoly is an industry structure characterized by a few firms producing all or most of the output of some good that may or may not be differentiated.

- Cournot model - a model of oligopoly that assumes each firm determines its output based on the assumption that any other firms will not charge their output.

- Stackelberg Model - a model of oligopoly in which a leader firm selects its output first, taking the reactions of follower firms into account.

- Dominant Firm model - a model of oligopoly in which the leader or dominant firm assumes its rivals behave like competitive firms in determining their output.

Why price “dispersion” exists

- a range of prices for the same product, usually as a result of customers lacking price information.

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