7
Concepts
6
Formulas
1
Decisions
5
Quiz Questions
7 concepts covered in this module.
Many firms, identical products, no barriers to entry. Price takers. P = MR = MC in long run. Zero economic profit in LR.
Many firms, differentiated products, low barriers. Downward-sloping demand. Zero economic profit in LR due to entry.
Few large firms, high barriers, interdependent pricing. Game theory applies. Nash equilibrium: each firm optimizes given others' choices.
Single seller, unique product, very high barriers. Price maker. MR < P. Can earn economic profit in long run.
All firms maximize profit where MR = MC. If P > ATC: economic profit. If AVC < P < ATC: operate at a loss. If P < AVC: shut down.
LRAC decreases as output increases. Minimum efficient scale: output where LRAC is first minimized.
N-firm ratio and HHI measure market concentration. HHI = sum of squared market shares. HHI > 2,500 = highly concentrated.
6 essential formulas for this module.
Where: MR = marginal revenue, MC = marginal cost
Where: P = price, Q = quantity
Where: TC = explicit + implicit costs
Where: Sum of squared % market shares
Where: Zero economic profit point
Where: Cannot cover variable costs
1 decision frameworks to guide your analysis.
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