Visual introduction on the concept of perfect competition. Tutorial includes discussion on profit, lost, marginal cost, average total cost and variable cost.
Labels: Microeconomics, Summarized by Adami Fajri
Masters in Applied Economics (Linkage Program) - 2014 Intake
Summary
By :
Rahadi
Sri Rahmanto (120720140028)
This
video explained why consumer and producer entering particular market of good or
service. Both the consumer and the
producer go to the market because of consumer surplus and producer surplus
respectively.
Looking at
the supply-demand curve, we could see how much consumer willing to pay for certain
quantity of goods as well as how much producer willing to receive in return for
certain quantity of goods.
Consumer surplus is the gap between the total utility
of a good and its total market value. The surplus arises as result of the law
of diminishing marginal utility. According to this law, the earlier units consumed
are worth more to us than the last. Consumer surplus indicates the extra value
that consumers obtain above what they pay for a good.
Producer surplus is defined as the difference between
the amount the producer is willing to supply goods for and the actual amount
received by him when he makes the transaction.
For the
market as a whole, consumer surplus is visualized by the entire area under the
demand curve and above the line representing the purchase price of the good (This
reflects the fact that consumers would have been willing to buy a single unit
of the good at a price higher than the equilibrium price). Producer surplus, on
the other hand, is illustrated by the entire area above the supply curve up to
the market price.
The
total value of the market (also called measure of welfare) itself is represented by total surplus which
is the summation of the consumer surplus and the producer surplus.
References
:
1. Pindyck, Robert S. & Rubinfeld,
Daniel L.2009, Microeconomics. New Jersey : Prentice Hall
2. Nordhaus, William D. & Samuelson,
Paul A. 2010, Economics. New York : McGraw Hill
This video will answer about three fundamental business management questions; What to Produce? How to produce? and How much to produce?. Simple illustration "The basic building block of economics and management information for the farm is cost of the production"
Costs of production
Costs are defined as those expenses faced by a business when producing a good or service for a market. Every business faces costs and these must be recouped from selling goods and services at different prices if a business is to make a profit from its activities. In the short run a firm will have fixed and variable costs of production. Total cost is made up of fixed costs and variable costs
Fixed Costs
These costs relate do not vary directly with the level of output. Examples of fixed costs include:
- Rent paid on buildings and business rates charged by local authorities.
- The depreciation in the value of capital equipment due to age.
- Insurance charges.
- The costs of staff salaries e.g. for people employed on permanent contracts.
- Interest charges on borrowed money.
- The costs of purchasing new capital equipment.
- Marketing and advertising costs.
Variable costs vary directly with output. I.e. as production rises, a firm will face higher total variable costs because it needs to purchase extra resources to achieve an expansion of supply. Examples of variable costs for a business include the costs of raw materials, labour costs and other consumables and components used directly in the production process.
We can illustrate the concept of fixed cost curves using the table below. The greater the total volume of units produced, the lower will be the fixed cost per unit as the fixed costs are spread over a higher number of units. This is one reason why mass-production can bring down significantly the unit costs for consumers – because the fixed costs are being reduced continuously as output expands.
References :
1. Pindyck, Robert S., Rubinfeld, Daniel L., Microeconomics, 7th Edition, Prentice Hall, 2009
2. http://www.tutor2u.net/economics/revision-notes/as-marketfailure-productioncosts.html [accessed : 30/08/2014]
Labels: Cost Production, Microeconomics
The Law of Supply
Summary by Ishna Rizqi Amalia ( 120720140032)
This video explained how the level of price will make the differences in quantity supplied.When The price of fried chicken increase it leads the quantity supply to rise, but when the price decrease it will makes the supply curve moved downward. It is what economics called as The Law of Supply.
The Law of Supply
The positive relationship between price and quantity of good supplied : An increase in market price will lead to an increase in quantity supplied, and a decrease in market price will lead to a decrease in quantity supplied.
References :
Case, Karl E & Ray C.Fair, 1996. Principles of Economics. 4th Edition. Prentice-Hall International
Labels: Microeconomics
Summary by :
Syofiatin Syamsiyah (120720140010)
An easy and simple analogy example “scream energy and sushi production” provided in
Monster Inc. movie, explains production of two outputs based on concepts in
economics. The monsters need capital goods used in production to produce their energy resources (scream energy) and food (sushi) as consumer goods. In order to reach the maximum production based on the quantity of resources they have, they must manage those resources efficiently. One of solutions they have done is by creating a new laughing machine which can generate more energy.
Production Possibility Frontier
(PPF) sometimes called a Production Possibility Curve (PPC), Production Possibility Boundary or Product Transformation Curve, is a graph representing the
combination of two goods that can be produced with fixed quantities of inputs
such as labor, capital, land etc.
PPF defines productive efficiency in the context of production set. A point on the frontier indicates efficient use of the available inputs,
while a point beneath the curve indicates inefficiency. In addition,
any point outside the curve shows unattainable output with the current level of
resources.
Any point along PPF is also called Pareto Efficiency, which has two useful functions :
1. It can be an objective for economy because it can set a direction of economy movement
2. It can help the imperfections or rigidities that exist in an economy and prevent Pareto efficiency being achieved
Any point along PPF is also called Pareto Efficiency, which has two useful functions :
1. It can be an objective for economy because it can set a direction of economy movement
2. It can help the imperfections or rigidities that exist in an economy and prevent Pareto efficiency being achieved
A movement
along PPF, shows the different combinations of outputs which can be produced
with given resources in the most efficient way with the best priorities or
choices of the economy. An outward
shift representing an improvement in economic efficiency is influenced by growth
or availability
of inputs such as capital and new technology, while an inward shift describing
inefficiency is caused by depletion of raw material, natural disaster or shrink
of workforce.
Source :
http://tutor2u.net/economics/revision-notes/as-markets-production-possibility-frontier.html(acessed 30/08/2014)
(acessed 30/08/2014)
http://www.economicsonline.co.uk/Competitive_markets/Production_possibility_frontiers.html
(acessed 31/08/2014)
Labels: Microeconomics
Summary by:
Lailatul Marzuqoh (120720140030)
Oligopoly is an intermediate form of
imperfect competition in which an industry is a dominated by a few firms. One
major factor of the imperfect competition is strategic interaction. When only a
few firms operate in a market, they will soon recognize their interdependence.
They have a choice between cooperative and non cooperative behavior. Firms act non cooperatively when they act on their own without any explicit or implicit
agreement with other firms. That’s what produce price wars. Firms operate in a
cooperative mode when they try to minimize competition. When firms in an
oligopoly actively cooperate with each other, they engage in collusion. This term denotes a
situation in which two or more firms jointly set their prices or outputs, divide the market among themselves , or make other business decisions jointly.
To maximum the profit, they use strategy called Game Theory. The classic example of the Game Theory is The Dilemma’s Prisoner, which is assume
two people arrested and put into different cell. They have two option, to confess
or not to confess. The point of this theory is before you make a choice, better
you keep in mind what other person gonna do, assume that your opponent will
choose his or her best option. Then pick your strategy so as to maximize your
benefit, always assuming that your opponent is similarly analyzing your option.
Comic book industry is an oligopoly, which is
Marvel has 37% market shares, and DC has 31% market shares. Their product is
very similar and they try to find what the customer want and steal an idea from
each other. Since the comic book become oligopoly, they have to use Game Theory
with Dominant Strategy and Nash
Equilibrium. Dominant strategy is used when one player has a single best
strategy, no matter what strategy the other player follows, while Nash
Equilibrium is a solution in which each player’s strategy is a best response
against other player’s strategy.
References :
Samuelson, Paul A & William D Nordhaus, 2005. Economics. 18th Edition. McGraw Hill.
Labels: Microeconomics