ManEcon

• Market


  Consists of all firms and individuals who are willing and able to buy or sell a particular product
• Potential Entrants


  These are all individuals and firms that pose a sufficiently credible threat of market entry to affect the pricing and output decisions of incumbent firms.
• What are the Market Structure?

  1. Competitive Market/Perfect Competition
  2. Monopoly
  3. Monopolistic Competition
  4. Oligopoly
• Type of products produced

  PERFECT COMPETITION

  • Homogenous product offered
  • No concept of consumer preferences
• Type of products produced

  OLIGOPOLY

  • Identical/Differentiated products
• Type of products produced

  MONOPOLISTIC MARKET

  • Similar and highly predictable products
  • Sellers offer close substitute products
• Type of products produced

  MONOPOLY

  • Very UNIQUE and highly predictable
  • No close substitute
• Number and size of seller and buyers

  MONOPOLY

  • Single seller
• Number and size of sellers and buyers

  PERFECT COMPETITION

  • Many and small sellers
• Number and size of sellers and buyers

  OLIGOPOLY

  • few large firms that dominate the industry
• Number and size of sellers and buyers

  MONOPOLISTIC MARKET

  • Has handful of buyers and sellers
• Price of the product

  PERFECT COMPETITION

  • All firms only have the motive of profit maximization
  • Consumers can dictate price
• Price of the product

  OLIGOPOLY

  • The firms set and control prices
• Price of the product

  MONOPOLISTIC MARKET

  • Profit maximization occurs
  • Firms compete for economic profits
• Price of the product

  MONOPOLY

  • The firm is the price maker
• Difficulty of entering and exiting the industry

  MONOPOLY

  • Entry and exit are difficult and blocked
• Difficulty of entering and exiting the industry

  PERFECT COMPETITION

  • Free entry and exit from industry
• Difficulty of entering and exiting the industry

  MONOPOLISTIC MARKET

  • Comparatively EASIER entry and exit of the market
• Difficulty of entering and exiting the industry

  OLIGOPOLY

  • Barriers to enter the market because of HUGE CAPITAL investment
• Numbers of companies in the market

  MONOPOLY

  • No competitors
• Numbers of companies in the market

  MONOPOLISTIC MARKET

  • Multiple giant firms
• Numbers of companies in the market

  PERFECT COMPETITION

  • No one can affect the market
• Numbers of companies in the market

  OLIGOPOLY

  • Few firms in the industry
• Variable Cost


  These are the expenses that change based on how much of something you produce or use. In simpler terms, they're the costs that go up or down depending on how much you make or do.
• Fixed Costs


  Are the expenses that stay the same no matter how much you produce or use.
• Total Cost


  The sum of all the expenses you have when making or producing something.
• Opportunity cost


  The expense of giving up the next best option when making a choice.
• Accounting Cost


  This is the actual money spent on resources like materials, labor, and overhead to produce goods or services. It's what you see on a company's financial statements - tangible expenses that are recorded in their accounting books.
• Economic Cost


  Takes accounting costs into account but goes beyond just the money spent. It includes both explicit costs (like accounting costs) and implicit costs, which are the opportunity costs of using resources.
• Explicit Cost


  The actual expenses incurred by a firm, such as wages, materials, rent, utilities, etc.
• Implicit Cost


  Are the benefits foregone by not using resources in their next best alternative use.
• Hidden Cost Fallacy


  This happens when you don't pay attention to important costs that change based on what you decide to do. In simple words, you're not considering the costs that directly relate to the outcome of your decision.
• Fixed Cost Fallacy


  This occurs when you focus on costs that don't change, no matter what decision you make.
• Sunk Cost Fallacy


  This happens when you consider costs that you've already spent and can't get back, like money you've already invested or time you've already spent.
• When you're having trouble making a decision, remember two things:

  1. Recognize the relevant benefits and cost of decision.
  2. Consider the consequences of the decision from your organization’s point of view
• FORMULA

  Total Revenue

  
• Formula

  Accounting Profit

  
• FORMULA

  ECONOMIC PROFIT

  
• FORMULA

  AVERAGE FIXED COST

  
• FORMULA

  AVERAGE VARIABLE COST