Labor Market Economics Study Notes Essay

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Constant-cost IndustryAn industry in which the entry and exit of firms have no effect on the prices firms in the industry must pay for resources and thus no effect on production costs.

Figure 11.3 The long-run supply curve

Increasing Cost Industries­

Most industries are increasing­cost industries
, in which firms' ATC curves shift upward as the industry expands and downward as the industry contracts. Productive Efficiencies­
The production of a good in the least costly way; occurs when production takes place at the output at which average total cost is a minimum and marginal product per dollar's worth of input is the same for all inputs.
Consumer SurplusThe difference between the maximum price a consumer is (or consumers are) willing to pay for an additional unit of a product and its market price; the triangular area below the demand curve and above the market price.
Creative DestructionThe hypothesis that the creation of new products and production methods destroys the market power of existing monopolies.
Pure Monopoly “blocked entry”-

A pure monopolist has no immediate competitors because certain barriers keep potential competitors from entering the industry. Those barriers may be economic, technological, legal, or of some other type. But entry is totally blocked in pure monopoly. Quick Review 12.1

•
A pure monopolist is the sole supplier of a product or service for which there are no close substitutes.
•

A monopoly survives because of entry barriers such as economies of scale, patents and licenses, the ownership of essential resources, and strategic actions to exclude rivals.
•

The monopolist's demand curve is downsloping and its marginal­revenue curve lies below its demand curve.
•

The downsloping demand curve means that the monopolist is a price maker.
The monopolist will operate in the elastic region of demand since in the inelastic region it can increase total revenue and reduce total cost by reducing output. Income Transfer-

a monopoly transfers income from consumers to the owners of the monopoly.
Simultaneous ConsumptionThe same-time derivation of utility from some product by a large number of consumers. Rent seeking expenditures & behaviorThe actions by persons, firms , or unions to gain special benefits from government at the taxpayers' or someone else's expense.
Price discriminationThe selling of a product to different buyers at different prices when the price differences are not justified by differences in cost.
Market Segregation-

At relatively low cost to itself, the seller must be able to segregate buyers into distinct classes, each of which has a different willingness or ability to pay for the product. This separation of buyers is usually based on different price elasticities of demand, as the examples below will make clear.
Product DifferentiationA strategy in which one firm 's product is distinguished from competing products by means of its design, related services , quality, location, or other attributes
(except price ).

OligopolyA market structure in which a few firms sell either a standardized or differentiated product, into which entry is difficult, in which the firm has limited control over product price because of mutual interdependence
(except when there is collusion among firms), and in which there is typically nonprice competition
.
Strategic behaviorSelf-interested economic actions that take into account the expected reactions of others. CartelA formal agreement among firms (or countries) in an industry to set the price of a product and establish the outputs of the individual firms (or countries) or to divide the market for the product geographically.
Global perspective 13.1

Price leadershipAn informal method that firms in an oligopoly may employ to set the price of their product: One firm (the leader) is the first to announce a change in price, and the
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