微观经济学参考.doc

1. a. Total cost Definition total cost(TC) describes the totaleconomic costof production and is made up ofvariable costs, which vary according to the quantity of a good produced and include inputs such as labor and raw materials, plusfixed costs, which are independent of the quantity of a good produced and include inputs (capital) that cannot be varied in the short term, such as buildings and machinery. Total cost in economics includes the totalopportunity costof each factor of production as part of its fixed or variable costs.TC is the sum of VC and FC. Fixed costs is always a constant quantity and it is not changeable with the level of output; so the fixed cost is a horizontal line. The total cost curve is an upward line. Variable costs changes as the output changes. Therefore, VC curve is an upward sloping curve from the original point. The total costs equals fixed costs plus variable costs, Therefore, TC curve is also an upward sloping curve. It parallels to the VC curve and the vertical distance is the quantity of FC. b. Average costDefinitionAverage costis equal tototal costdivided by the number of goods produced. Average cost curve is a “U” shaped curve, AC is the sum of AFC and AVC. First of all, When output is small, AC is very high because FC spreads over a small number of units. Then, the marginal production is more than the average production when output increases, the average production will rise, therefore, When output increases, the average fixed cost will also decrease. the average variable cost will decrease. So the average cost will fall too. Then, To some certain level of outputs, as the outputs increase, AC will now increase rapidly. Now AFC becomes smaller and smaller, it is not an important factor in AC. AVC will increase as output rises for the production becomes inefficient. c. Marginal costDefinition Marginal cost is the addition to total cost resulting from increasing total output by one more unit. Cet par, as output increases from zero, at first, inputs of variable factors are relatively less than inputs of fixed factors. Therefore, increasing the inputs of variable factors will raise the efficiency of production. MC falls as outputs increase. After certain output, as continuously increasing the inputs of variable factors, the production is inefficient. Therefore after that output, MC rises as output increases. 2. Explain what is meant by the term oligopolyAnoligopolyis amarket formin which amarketorindustryis dominated by a small number of sellers (oligopolists). Oligopolies can result from various forms of collusion which reduce competition and lead to higher costs for consumers.This is a kind of market structure that there are only a few sellers of a particular commodity. Describe the main characteristics of this type of market structure1 Prices are unlikely to change very often. Regardless of the price rise or price cuts All the firms need to make a perfect program to improve their competitive rather than change their prices in short time.2 Large Barriers of entry and exit.3There is high degree of industrial concentration and the goods and services may be similar4Its strategies are interactive.5 There are a few large suppliersWith the aid of a kinked demand curve diagram and with reference to price and output behaviour, describe how firms are likely to behave under oligopoly conditions. Price is OP1 and output is OQ1. And point G is equilibrium point. The firm maximum profits at Q1, P1 where MR=MC. Thus a change in marginal cost may not change the market price. When the price is higher than OP1, a price increase demand is price elastic, it will cause a huge decrease in quantity. If one firm cuts price, other firms will follow suit because they dont want to lose market share. Therefore, for a price cut, demand is price inelastic. It is under the kinked. It means that the decline of prices leads to a little increases in demand and cutting prices can get little extra sales.In the end, Oligopolies may benefit from economies of scale. This enables lower average costs with increased output. However, oligopolies can not meet severe sticky price. Instead, they depend on other types of non-price competition, Such as, loyalty schemes and free gifts.3. MonopolyDefinition Amonopoly(fromGreekmonos (alone or single) +polein (to sell) exists when a specific person orenterpriseis the only supplier of a particular commodity (this contrasts with amonopsonywhich relates to a single entitys control of amarketto purchase a good or service, and witholigopolywhich consists of a few entities dominating anindustry).It is the other end of the spectrum from perfect competition, and it may have almost complete over the supply of a commodity. Characteristics a. there is only one firm in the industryb. Large Barriers to entry and exit the monopolistic competitive area. c. No substitute If the market was competitive the price would be lower and output higher. A monopoly cannot control the demand for the commodity; this means that if the monopolist wishes to supply more, they only can achieve this by decreasing the price. Therefore, the demand curve shaped downwards. In this diagram we can find that the profit maximum output is Q1. This is where marginal cost equals marginal revenue. It shows that output increases, price will fall, in other words, the average revenue curve is a downward line andcoincide withthe demand curve. If a firm raises its prices it may lose some sales. However it can also try to increase demand by lowering prices. Therefore, marginal revenue must be less than average revenue. 4. The concept of profit maximisationIn economics, profit maximization is the short run or long run process by which a firm determines the price and output level that returns the greatest profit. There are several approaches to this problem. The total revenuetotal cost perspective relies on the fact that profit equals revenue minus cost and focuses on maximizing this difference. Another way is focused on marginal revenue and marginal cost. the company will reach profit maximization as marginal revenue is equal to the marginal cost , because the rise in profit will become zero, for example, Sony, Microsoft or Nintendo The problems of achieving this objectivea) The company give more pressure to works, for example, let them work overtime and do not offer welfare for them, they will produce the products in poor quality in the bad situation.b) There is a problem for many managers or directors in that they may never know whether or not profits have been maximised.c) all the economic decisions are made in a short time and managers operate in a constant state of flux, this makes it difficult to establish the hard information which would allow profit maximisation to occur in practice.d) they may lack of accurate and detailed information to allow considered judgement of the economic issues.e) In order to maximize the profit, the company may lack of social responsibility to damage environment.5.an alternative theory to the objective of profit maximisation. Growth maximization theory It is propounded by Robin Marris based on the following facts. In this theory, the manager will look for privilege, status, payment and so on; however, they both want to grow their firm. If the market or product is mature and has little g