Friday, April 07, 2006

And a few more...

Hey there -

I'll check in on occasion over spring break if you have any questions, or just email me. If you've been confused, please spend some time with PC or M so that you can feel more caught up - and if anyone else can answer a peer's question, that's always helpful! :) Most of all - have a nice, relaxing break. You deserve it.

You should be able to:
~recognize a PC graph if it is pictured in front of you but unlabeled
~understand how price is "determined" in PC
~be able to draw accurate industry & firm graphs (completely and appropriately labeled)
~show what happens in the long run if there are short run profits or losses

Monopoly:
http://www.reffonomics.com/monopoly1.ppt
Introduction to Monopoly. It starts with info on copyright, trademark, etc that is useful for possible questions on the test.

http://apecon.us/monopolyperfectcompetition.gif
(Price searcher = price taker) This is on MR & D curves and compare PC, M & MC (which we haven't gotten to yet, but shouldn't be too confusing)

http://www.reffonomics.com/monopoly3.html
Monopoly graph


The problem with putting problems on the markets on here is that you often need to show the graphs in order to get the idea. So some of these might be easier if you draw a graph - but then again, if you can do it without the graph, on a m/c question you'd be able to cut your timing down. Keep in mind that in the short answers, you WILL need to draw graphs. I promise.

There is a grade for posting from 4-3 to 4-10, but you can get extra credit for posts next week.

Okay - some more things to think over:
1) Consider the delivery of mail. In general, what is the shape of the ATC curve? How might it be different than in isolated rural areas or densely populated urban areas? How might the shape change over time?

2) Singer Diddy has a monopoly over a scarce resource: himself. He is the only person who can produce a Diddy concert. Does this fact imply that the government should regulate the prices of his concerts? Why or why not?

3) Why is the equality of marginal cost and marginal revenue essential for profit maximization in all market structures? Why can price be substituted for MR in the MR=MC rule when an industry is perfectly competitive?

4) In long run equilibrium of a perfect competitor, P = min ATC = MC. Of what significance for economic efficiency is the equality of P and min ATC? The equality of P and MC? Make sure to distinguish between productive efficiency and allocative efficiency.

5) Assume that a pure monopolist and a purely competitive firm have the same unit costs. Contrast the two with respect to (a) price, (b) output, (c) profits, and (d) allocation of resources. Since both monopolists and perfectly competitive firms follow the MC = MR rule in maximizing profits, how do you account for the different results? Why might the costs of a PC firm and a monopolist be different? What are the implications of such a cost difference?


~~~~~~~~~~~~~~~~~~~~
Last, but never least: an option for extra credit to turn in on Tuesday 4/18. It will not be accepted after that date! How mean! :) Do some or all - you can get partial credit.

EC #1:
Suppose that the US textile industry is competitive, and there is no international trade in textiles. In long run equilibrium, the price per unit of cloth is $30. (a) Describe the equilibrium using graphs for the entire market and for an individual producer.

Now suppose that textile producers in other countries are willing to sell large quantities of cloth in the US for only $25 per unit. (b) Assuming that US textile producers have large fixed costs, what is the short-run effect of thesse imports on the quantity produced by an individual producer? What is the short run effect on profits? Make sure to illustrate your answer with appropriate graphs. (c) What is the long run effect on the number of US firms in the industry?


EC #2:
Wow. I really don't want to type all this right now. Go to p344 in your text, and do #1 under "Problems and Applications". If you don't have your texts at home, leave a note here by MONDAY MORNING and I will type it in when I come into work on Monday.



Enjoy! :)

KM

47 comments:

helen said...

2 although monopolies are inefficient, I think a Diddy concert should be considered a natural monopoly, and anyway, government intervention is always inefficient

The Amazing O-clam said...

Well, since we are all apparently insanely busy...
What do you think the opportunity cost of doing schoolwork on a break be?

schmid said...

1. The ATC curve is a concave up curve that has a minimum that occurs where it intersects with the MC curve (since MC curve brings it down). In a rural area the ATC curve will be placed higher since it is more expensive to mail. There will also be fewer producers for mail delivery. Thus there may be 1 mail service with a monopoly having control over the price. I think that maybe over time the curve would get flatter since it is more elastic.

schmid said...

2. No; I do not think the government should intervene in concerts unless it gets way out of hand. Like Helen stated: "government intervention is always inefficient"

schmid said...

3. It is important that marginal cost and marginal revenue are equal because then the firm is returning the money that it took to produce the product. In a perfectly competitive market, price can be substituted for MR since that is where it is at allocative efficiency. A perfectly competitive market is also a price taker.

jacnbox said...

1. i thought we were just dealing with the us postal service until sarah thought about other companies. oh well. econ is not on my brain, so i couldnt come up with an answer, but sarah's makes sense. wherever there are less people the cost is high because it is not an area with a large quantity demanded. and the cost for the service is still the same.

2. no, because p.diddy is not an irreplaceable resources. there are many close substitutes in the music business. if he really is in demand that much, what has the world come to? besides, other than his concerts, he is not the sole producer of his enterprise. many other suits are helping him with his decisions. if he were to die tommorow, his companies would still be operable.

jacnbox said...

3. i hate being gone for multiple days in a row.

4. what???

5. oh my word. seriously now. i cant answer three in a row???

movin' on to the EC.

forsnic said...

so i went to the movie theater in janesville last night. ok, i was thirsty right, so i buy a bottled water, (not a big soda fan), and i'm hungry so i decide to split a box of raisinettes with sarah. my ticket was $8 and my refreshments $5.50. the water was $3. for all you math whizzes, yes the water cost more than the candy. i was almost not willing to pay $3 for water. however, since that is the only clean water they offer besides bubbler water, people pay it (like me) because there aren't any other good substitutes. the cups they give you for bubbler water are smaller and the water doesn't taste as refreshing as aquafina,naturally.

forsnic said...

well the opportunity costs of doing hw include, but are not limited to: sleeping (high on my list), eating (good choice), hanging out with friends, traveling, watching movies, being outside in this wonderful weather, messing with people's cars (cough malco), and in general just being lazy. therefore i didn't start my homework til today. because it would normally be a school day i guess so it just feels right...

forsnic said...

its a diddy concert. no one throws a concert or party for that matter like diddy. besides i think the government would get trampled by his hummers and bodyguards if they tried to intervene if things get too out of hand. no jk but the music biz is pretty powerful considering more people vote for american idol than in the last two presidential elections. i think that says enough right there.

Annie said...

i'm thinking that diddy is similar to most other popular singers such as britney spears or if perhaps barney did a concert: people are willing to pay a certain price for tickets but after the prices get ridiculous sales will go down and discourage diddy fans all together.
plus a concert ticket is a luxury so to regulate the prices would cause a huge uproar by the whole pop culture industry

Annie said...

with thh delivery of mail, if you look at it in terms of the mailman as he delivers more and more mail the atc is decreasing because his pay is staying the same but more mial is being delivered which means more money is being brought in.....so the atc curve is downward sloping....in rural areas it will still be downward sloping but will have a lesser slope because there is the price of gas too.
over time the atc will get higher because less mail is being used instead the internet is used

Bethany said...

2. Singer Diddy definitely has a monopoly over himself but there are plenty of substitutions for his concert. Also, the government should not regulate prices because his concert is not a necessity and he is still has to obey the laws of demand.

Bethany said...

1. The ATC curve for mail will start out decreasing, because the fixed costs will spread out over more and more quantities. Eventually, it will stop decreasing because the process will become more inefficient. The ATC of a rural community will be higher than a city because there is less postage to pay the deliveryperson and cover fixed costs.

KM said...

You guys are good. You're really working hard to get the economic thinking in there - great job! :)

helen said...

2 I just had a thought (big surprise!); yes, Diddy has a monopoly on himself, but for most of the population, Diddy concerts are a very elastic product, which limits the amount he can charge for concert tickets

freejon said...

On a random-ish tangent about "government intervention is always inefficient"...

Although we are currently having economic problems, such as businesses going over seas, the government is not always the inefficient one. The best example I can think of is The Great Depression. That is one of the worst economic problems in US history and companies didn't get us out of the it, the governement did. The government was the one to create new jobs. Also, when the country goes to war, factories start producing more and unemployment drops, boosting our economy.

I think companies normally have a better view of S and D because they are the ones striving towards maximizing profits. Or maybe the government is too (through taxes?) and businesses can just hire better economists.

freejon said...

5a)monopoly: higher prices because of the lack of competition

b)monopoly: higher output because its the only company that makes that product

c)monopoly:higher profits because there are no competitors to steal profit from them by raising profit

d)monopoly: more money towards production since there is no competition.
competitive firm: money towards advertisement and production

There are no profits in PC so there will be little cost in a PC firm because it wont help their business. A PC firm will therefore will make little to no money, but will not spend much money because of not being able to get a profit.

KM said...

The government received a lot of criticism for not hopping into the Depression earlier - and in some ways, encouraged the heavy borrowing that led to the economies' problems.

I've mentioned before (but it was a while ago) that it wasn't the stock market collapse that caused the Depression - it was the heavy borrowing. People had huge amounts of debt throughout the Roaring 20's, and many were borrowing heavily on margin to purchase stocks. When the stocks tanked, those margin calls came in and they couldn't pay them - plus, many were already heavily in debt, so they had no money to meet their creditors. From there, it was just a downward spiral.

So...the government had been encouraging heavy borrowing...is that more government intervention? :)

Business going overseas is not necessarily a bad thing. How would an economist view this?

Bethany said...

Mrs. MacDaniels
I don't think the government encouraging heavy lending is necessarily government intervention, but it is government influence. It's a shame that economists don't run our government.
Didn't we already agree that all trade is good?

amepham said...

Diddy still does concerts?hahah
I agree with annie, if ticket prices get to high people will just not buy them. Plus government intervention is never efficient.

Joe Madden said...

1- The atc curve is parabolic in nature (haha, i just had to say that....there's no better explanation without math...maybe i could have said it looks like the mouth of a smiley face)...there would be more total costs in a rural area

Joe Madden said...

2 - This one struck a chord with me. I wish the government could step in and limit the concert prices, but that would not be the american way. The government should step in and destroy ticketmaster...I just bought some dave matthews tickets for this summer...50 bucks for the lawn...it would have been 15 bucks cheaper without that damn handling fee...

emkatbuto said...

Question on 2...how can he really be a monopoly because there are other options to listen to that type of music or you can just buy the cd instead of going to a concert...? And if the government regulates the sales of his tickets then they will have to regulate the sales of every other preformers tickets.

schmid said...

4. allocative efficency is the production of the quanity that is most benefical to society. Therefore a firm is allocatively efficient when P = MC. Productive efficiency, on the other hand, is when the economy is working on its PPF; or when production is achieved at the lowest cost possible. Therefore a firm has productive efficiency when the least amount of resources are used to produce a good/service (or produced at lowest cost). Therefore a firm wants P to = min ATC, since that is where it has productive efficiency. A firm wants P and MC to be equal since such a quantiy is beneficial to society.

gorman said...

2. I dont think they can because diddy could be an elastic good..if the price is too high ppl will go somewhere else

gorman said...

3. Price can be substituted for MR because that is what people are willing to pay for the next unit of a good...mr=mc is the best point because it is where producers are making the most goods and still making the most and it is where consumers are willing to buy thew most

cherie said...

2. I do not think the government should intervene with concerts unless the prices become way over priced.

NicolleM said...

2. I like Helen's answer for this one. It is true that Diddy has a monopoly on himself, but if he charges too much, no one will come. In that way, it's elastic.

NicolleM said...

5a. Though both firms have the same unit costs, monopolys can charge more because they don't have competition.
b. I think I remember that monopolys charge more for less goods, but I don't have my stuff with me.
c. Monopolys are of course going to have more profits because of their lack of competition
d. Monopolys will use all of their money for production, where as competitors have to keep everyone else in mind with advertising and such.

Annie said...

when price cross min atc for long run equilibrium it means that a company doesn't lose or gain anything for the production of one more good, so it is solely based on the demand....price and marginal cost cross at a point that it costs the same amount to make one more as the price is so there is no profit or loss....i have no idea what he difference is between productive and allocative efficiency

Annie said...

for number three i think that mc and mr equality in all market structures because it means that a business can keep producing because they are making enough money to cover the cost of each product but they are not producing over the actual demand....price can be substituted for mr because mr remains constant throughout the graph and so price and mr are =

cranjos said...

although im most definitly not an econ major, i would like to think that diddy concerts are quite elastic. i dont think there are too many people out there who are willing to pay whatever price someone charges them just to see diddy perform, but i might be wrong...prolly not though

bjjames said...

1) the atc for mail would be interesting because it depends on a number of things in cludeing transportation. So over time, the atc will move up. Also, in rural areas it is going to cost more because people are spread out, but in urban areas close together, but mail is the same all over the US. I don't quite get it, but it is a government business or at least US Postal is. With UPS and Fed Ex and the others, the ATC for them is going to change from area to area.

bjjames said...

2. The gov't can control art right, so technically they could put a limit on the price of concert tickets, but not on P-Diddy himself. So technically the answer is no.

bjjames said...

3. In a monopoly, if MC=MR then the profit is maximized because if you move to the right or left of that point, either cost goes up and MR goes down or Q isn't as much meaning that in the long run, not as much money will be made

theczyzewicz said...

1) did we learn why the shape of the ATC curve is the way it is? or is that a trick question. Well, here's my guess...it would be a straight line because the people are taking the same route every day, and are using the same amount of gas. I don't know if that's what you meant, but it's the best I can do. :)

theczyzewicz said...

hm i just read Sarah's post...and i realize that i am almost completely stupid. sorry for lowering your iq. please don't sue me for too much money in compensation for damaging your brain...i'm pretty broke right now.

theczyzewicz said...

2) We don't have to worry about the monopoly over P. Diddy because one of two things will happen. His show could get sold out, so the prices for his tickets will naturally be higher anyway, and how can the government intervene with people scalping tickets anyway? The other option is that Usher is playing the same night and everyone decides to go to him because he is way hotter.

theczyzewicz said...

3. Marginal cost is how much it costs to make one more and marginal revenue is how much you get from making one more. When these are equal or MR is greater than MC, then you are not losing money, and that is the main goal of any business...not to lose money. MR=MC is the most efficient point on the graph, and this is why in perfectly competetive market we can substitute P for MR or MC.

theczyzewicz said...

4. The minimum ATC is where it costs the least to make that quantity of product. This means that it is cheapest to produce at that quantity, and therefore is the most efficient point.
mmhmm and for the second part of that, I agree with Schmid. she just knows it all.

Reid said...

I think that the government should only intervene when there is a huge problem, like if it's like 1000 dollars for a ticket. That would be really stupid on his part though because Diddy concert's aren't exactly that inelastic, in terms of needing it to survive. Government intervention always interferes with efficiency, but is sometimes necessary to keep the people happy.

Reid said...

Monpolistic Competition, game theory terms are the two things that I'm iffy about, can we review them in class again. Cool man.

freejon said...

Shouldn't the public be smart enough NOT to buy tickets for $1,000? If Diddy has a monopoly on himself, then the tickets would be inelastic and it wouldn't matter what the prices are, the demand would not budge. But, Diddy tickets are elastic because if they are $1,000 for a ticket, people will just go to the Warp Tour or some Eminem concert or something.

freejon said...

If a business goes overseas, we may not have the jobs here, but some other country has them. Those workers can then use that money to buy more products that we ship, and then we will have more money anyways. If we get more money, we will make more factories that create the product that gets shipped over there that creates more profit for the our businesses and so on. So maybe in the short run, its a bad thing, but in the long run we will probably get the money back somehow. Maybe we just think its bad because we don't get the jobs initially.

freejon said...

So what would have happened if the FDR and the government didn't step in and "help out"? Would our economy fix itself eventually, but it would have taken longer?

KM said...

Great analysis, Jonathon!

Economists differ on the outcome of the Great Depression if gov't hadn't intervened. Many say that it would have regulated itself - others say it would have been worse than it was. That's a tough question to answer. Personally, I think it would have gotten worse before the war effort because of the previous government interference that helped mess it up...

No easy answers! lol