Concentration and Cost curves

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  • Created by: Ella
  • Created on: 05-11-14 18:39
What is the concentration ratio?
Combined number of firms in the industry
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What is productive efficiency?
Producing at the lowest possible AC for maximum output
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What are Economies of Scale?
AC falls as output increases
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What are internal Economies of Scale?
Unlocked solely by the company getting bigger-> technical, purchasing, marketing, manergerial and financial
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What are external Economies of Scale?
Shared by all companies as a reuslt of growth and concentration of the market.
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How do you calculate Total Costs?
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How do you calculate Average Costs (AC)?
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What is the Marginal Cost (MC)?
The cost of producing one more extra output.
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Where is productive efficieny on the cost curves?
Where the MC intercepts the lowest point on the AC curve. Where average costs are minimised.
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What are short run factors?
Where one or more factors of production are fixed
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What are long run factors?
Where all factors of production are variable..
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How do you calculate Total Revenue (TR)?
Price x Quantity
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How do you calculate Average Revenue (AR)?
Total Revenue (TR)/ Quantity
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What is Marginal Revenue (MR)?
The extra revenue earned by selling an additional unit of output
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What is Normal Profit?
The minimum amount of profit needed to allow a firm to stay in business. This is build into the AC curve.
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What are Profit Maximising Firms?
Produce where MC=MR
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What does the Demand curve represent?
The Average Revenue (AR) curve
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What does the area UNDER the Demand curve represent?
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What are Barriers to Entry and Exit?
They dictate the concentration of the market and the ease in which new firms enter/leave the market
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What is contenstability?
The ease in which businesses leave and enter the market.
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Why does concentration matter?
Less concentration means more competition; lower prices as closer to MC this will result in allocative efficiency. Customers have more choice- this puts pressure on firms to become more cost efficient
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Name some types of Barrier to Entry?
Presence of economies to scale, sunk costs (high costs to exit), degree to which vertically integrated, extent product differenciation
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How does nature of costs affect concentration?
Sunk costs are costs that cannot be recovered if business leaves, deters firms entering market
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What does verticl integration mean?
Where one firm has control over different stages of production
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What is DIfferentiation?
Affects XED/PED- want consumers to make comparisons in order to choose which firm buy from.
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Why is 'market churn' important?
How many customers prepared to switch production over given time period. Want this to be as high as possible to encourage firms to meet customers needs.
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What is the price firms have to sell at?
Market Price- this is the only price in the market. If they change thet will immediatley loose custom.
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Why is demand curve for the individual firm perfectly elastic?
Homogenous- consumers indifferent to which firm provides product, Pefect info- consumers know all suppliers prices, Complete Freedom- consumers will always get the cheapest price
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What are the 5 assumptions of Perfect Comp?
Unlimited number producers and consumers; homogenous products; no barriers to exit; perfect info; complete freedom
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What happens if there is an Abnormal loss?
Firms would exit the market, supply would fall, price would rise until all losses eliminated.
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What happens id there is an Abnormal profit?
Other firms attracted to the market., copy the tech of profitable firm, supply increase, price would fall-abnormal profit eliminated.
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What is the total market supply?
Sum quanitity supplied by all producers
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Other cards in this set

Card 2


What is productive efficiency?


Producing at the lowest possible AC for maximum output

Card 3


What are Economies of Scale?


Preview of the front of card 3

Card 4


What are internal Economies of Scale?


Preview of the front of card 4

Card 5


What are external Economies of Scale?


Preview of the front of card 5
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