Econ 202 Exam 3 (Final Exam) PDF

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Notes pertaining to final exam...

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Econ 202 Exam 3 (Final Exam) Introduction to Market Structure Market Structure ● Market vs. Industry - Market needs two participants (buyers and sellers) - Industry is the seller’s side of the market ● Characteristics of market structure - Number of firms → changing the number of firms changes the structure of the market - Size distribution ➔ Market share = firm sales/industry sales ➔ Concentration ratio = n firm concentration ratio (take the 3 biggest firms in the industry and divide by the industry sales - Nature of the product ➔ Homogeneous product - consumers perceive the product and producers produce that identical product (wheat is wheat) ~perfect substitutes ➔ Differentiated products - consumers believe that the products have different characteristics in the same industry ( like the car industry) - Conditions of entry and exit ➔ How easy it i for firms to enter and exit overtime (ex. Entry barriers like patents - also depends on the size of the entry barrier) ● Conduct - Pricing behavior - Output behavior - Other types of behavior ● Performance - Efficiency ➔ Production efficiency - producing the amount that will maximize profit ➔ Allocation efficiency - producing the right amount product Classification of market structures ● Perfect (pure) competition ● Monopoly - one firm in the industry, 100% distribution, no need for differentiation impossible for anyone to enter the industry ● Oligopoly- few firms, homogeneous or differentiated product ● Monopolistic competition Profit maximizing rules ● Optimal output rule - best output that maximizes profit and minimizes losses - Marginal revenue and marginal cost ❏ MR>MC → Q goes up ❏ MR= TVC (AR >=AVC) → Produce ❏ TR < TVC (AR...