PGSTART AT 56
513 WORKSHOP PLAN
SUMMER 2005
DR. SHINGLETON
DESIGNED IN NEW TIMES ROMAN,
16 FONT, PORTRAIT
ONLINE SAVED IN HTML
WORKSHOP 3. AUG10
TWO QUESTIONS
OPEN NOTE/OPEN BOOK
TOPIC: SUPPLY AND DEMAND
NOTE: GUIDELINES TO GROUP
PROJECT ARE AVAIABLE ONLINE.
PROFIT AND CAPITAL
NORMAL PROFIT
DEFINITION
ROLE
ECONOMIC PROFIT
DEFINITION
ROLE
PROFITS
ACCOUNTING = NORMAL + ECONOMIC
NORMAL =
VENTURE CAPITAL
ROLE OF THE ENTREPRENEUR
APPLE COMPUTER
MCDONALDS
HIGH FAILURE RATE/RISK
NECESSARY RESOURCE
NORMAL PROFIT AS A COST
MINIMUM PROFIT NECESSARY
CREATES/DESTROYS MARKETS/JOBS/TECHNOLOGY
NO CHEERS
PRINCIPAL AGENT PROBLEM
MANAGEMENT VS OWNERS
SETTING INCENTIVES
EFFICIENCY IS COST
MINIMIZATION
COMPETING WITH
PRODUCTIVITY
TRANSPORTATION
INDUSTRIAL STRUCTURE-THEORY
COMPETITIVE MARKETS
MONOPOLISTIC COMPETITION
OLIGOPOLY
MONOPOLY
INDUSTRIAL STRUCTURE-LEGAL
WHAT IS A MARKET?
ACROSS PRODUCTS
ACROSS GEOGRAPHY
4 DIGIT CONCENTRATION RATIO
8 DIGIT CONCENTRATION RATIO
HHI INDEX
PRODUCTION
ECONOMIES OF SCALE
ECONOMIES OF SCOPE
MARGINAL PRODUCT
PR #10.2/SPREADSHEET
PG 235
DIMINISHING RETURNS
COSTS
SUNK
FIXED
SHORT RUN
LONG RUN
VARIABLE
MARGINAL COST
PER UNIT COSTS (PG221)
AVERAGE VARIABLE COST
AVERAGE TOTAL COST
MARGINAL COST
PR #10.4/SPREADSHEET PG 235
COST CHANGES
PRICES OF RESOURCES
TECHNOLOGY
PR #10.6/DIAGRAM PG 235
LONG RUN AVERAGE COST
ECONOMIES OF SCALE
CONSTANT RETURNS TO SCALE
DISECONOMIES OF SCALE
PRICE TAKER
PRICE SETTER
MARGINAL COST
MARGINAL REVENUE
OPERATING RULES FOR PRICE
TAKING FIRMS
MARKET PRICE = MARGINAL REVENUE FOR FIRM
Q = OPERATING RATE
ALL CASES REPRESENT PRICE TAKERS AND QUANTITY ADJUSTERS
CASE 1... P < MIN AVC
SHORT RUN
THE INTERSECTION RULE
BEST Q = 0
SHUT DOWN PRICE
LOSS = FIXED COST
LONG RUN
LIQUIDATION
CASE 2... P > MIN AVC BUT
P < MIN ATC
STRESS NEED TO KNOW COST STRUCTURE
SHORT RUN
CHOOSE Q SUCH THAT MR = P = MC
BREAK EVEN PRICE
LOSS < FIXED COST
HOW TO SHOW ECONOMIC LOSS (PG 239)
LONG RUN
LIQUIDATION
CASE 3... P = MIN ATC
WHAT IS SPECIAL ABOUT Q* ?
SHORT RUN P VS AVC
SET Q AT P = MR = MC
LONG RUN P VS ATC
SET Q AT P = MR = MC
HOW TO SHOW ECONOMIC PROFIT (= 0) (PG 239)
CASE 4... P > MIN ATC
SHORT RUN P VS AVC
SET Q AT P = MR = MC
LONG RUN P VS ATC
SET Q AT P = MR = MC
PROFIT MARGIN = P - ATC
MAXIMUM PROFIT MARGIN IS NOT MAXIMUM TOTAL PROFIT
PROFIT = P*Q - ATC*Q
HOW TO SHOW ECONOMIC PROFIT (PG 239)
PR #11.2/BY DIAGRAM AND 11.4/BY SPREADSHEET PG 259
INDUSTRY SUPPLY
INDUSTRY SUPPLY CURVE...
SHORT RUN
ECONOMIC PROFITS AND LOSSES AS MARKET SIGNALS
NO ENTRY/EXIT
THE ROLE OF EQUILIBRIUM
INDUSTRY SUPPLY CURVE... LONG
RUN
ECONOMIC PROFITS AND LOSSES AS MARKET SIGNALS
FREE ENTRY/FREE EXIT
THE ROLE OF EQUILIBRIUM
COMPETITIVE INDUSTRY
FREE ENTRY AND EXIT
HOMOGENEITY
MANY SELLERS
MANY BUYERS