Micro - Yr 2

• Law of Diminishing Marginal Returns - The use of one variable input

  increases, while others are held constant, the additional output gained will

  eventually diminish.
• Minimum Efficient Scale - Lowest output where a business achieves productive efficiency. After this point they experience either constant or diminishing returns to scale
• Creative Destruction - Innovation and technological advances may make existing products and industries out of date
• Characteristics of Perfect Competition - Infinity many, small firms and buyers - Homogenous goods - Perfect information - No barriers to entry/exit - Price takers - No supernormal profit in the LR
• Characteristics of a Monopoly - Single seller - Unique products - High barriers to entry/exit - Price makers- Supernormal profit in LR and SR
• Characteristics of Monopolistic Competition - Many firms and buyers - Low barriers to entry/exit - Differentiated products - Price makers- No supernormal profit in the LR
• Characteristics of an Oligopoly - Small number of large sellers - Barriers to entry/exit - Highly differentiated products - Price makers - Supernormal profit in the LR
• Oligopoly - Kinked demand curve as firms are interdependent, if 1 firm raises their price no one will follow as demand is PED elastic, however if a firm lowers price, competitors will follow hence demand is PED inelastic. As a result there is sticky prices and non-price competition

  
• Conditions for Price Discrimination - Monopoly power, the market can be split into groups, there is no market seepage (reselling) and the firm has some pricing power
• 3rd Degree Price Discrimination

  
• Marginal Revenue Product = Marginal Physical Product x Price = Demand
• Monopsony with Trade Union/National Minimum Wage

  
• Wage Differential - The difference in wages between two groups of workers with different skills in the same industry.
• Equality - All people are equal and have the same rights and opportunities. A positive concept
• Equity - Each person has different needs, resources are allocated so that an equal outcome is reached. A normative concept
• Absolute Poverty - Income is too low to ensure basic needs are met. World Bank defines this as below $2.15 per day
• Relative Poverty - Living below a certain threshold in a particular area
• The CMA and FCA (Financial Conduct Authority) work together to stop anti-competitive practices
• Free Lunch Syndrome - Government sells a public firm very cheaply and therefore doesn't have a revenue stream anymore
• Privatisation - The transfer of assets from the public sector to the private sector
• Privatisation was big in the 1980s where Margret Thatcher privatised many industries such as Railways and Airlines, Recently Royal Mail was privatised (2013)
• Nationalisation - When the government take over a private sector firm so they own all or part of it
• Utilities such as the national grid and railways are natural monopolies that are state-owned. As a result they have a natural monopoly. P1,Q1 is the profit max position of a private firm. P2,Q2 is the result of a public firm acting in consumer interests

  
• Regulatory Failure - Happens when a government agency, like OFGEM, operates in favour of producers rather than consumers
• Private Finance Initiative (PFI) - Where a private firm builds infrastructure which is then paid by the government in the form of instalments