Summary
Microeconomics, Institutions
and Welfare
Endterm, Year 1, period
by Manal Talhi
, Endterm Microeconomics, Institutions and Welfare
Table of Contents
Table of Contents........................................................................................1
Week 5: Unit 7, paragraphs 7.1- 7.7...........................................................3
7.0 Introduction.......................................................................................3
7.1 Breakfast cereal: Choosing a price....................................................3
7.2 Economies of scale and the cost advantages of large-scale
production................................................................................................5
7.3 Production: The cost function for Beautiful cars...............................6
7.4 Demand and isprofit curves: Beautiful Cars......................................7
7.5 Setting price and quantity to maximize profit...................................8
7.6 Looking at profit maximization as marginal revenue and marginal
cost...........................................................................................................8
7.7 Gains from trade................................................................................9
Week 6: Remainder of Unit 7: §7.8 – 7.13................................................11
7.8 The elasticity of demand.................................................................11
7.9 Using demand elasticities in government policies..........................12
7.10 Price-setting, competition and market power...............................12
7.11 Product selection, innovation and advertising..............................13
7.12 Prices, costs and market failure....................................................13
Week 7: Unit 8 + 11.1-11.3.......................................................................15
Unit 8: Supply and demand: price-taking and competitive markets.....15
8.0 Introduction.....................................................................................15
8.1 Buying and selling: Demand and supply..........................................15
8.2 The market and the equilibrium price.............................................15
8.3 Price-taking firms............................................................................17
8.4 Market supply and equilibrium.......................................................17
8.5 Competitive equilibrium: Gains from trade, allocation and
distribution............................................................................................18
8.6 Changes in supply and demand.......................................................19
8.7 The effects of taxes..........................................................................20
8.8 The model of perfect competition....................................................21
8.9 Looking for competitive equilibria..................................................22
[1]
, Endterm Microeconomics, Institutions and Welfare
8.10 Price-setting and price-taking firms..............................................22
Chapter 11: Rent-seeking, price-setting and market dynamics............22
11.1 How people changing prices to gain rents can lead to a market
equilibrium.............................................................................................22
11.2 How market organization can influence prices............................23
11.3 Short-run and long-run equilibria.................................................23
Week 8: Unit 12 excl. §12.7 + §11.9-11.11...............................................25
Unit 12: Markets, efficiency and public policy......................................25
12.1 Market failure: External effects of pollution................................25
12.2 External effects and bargaining....................................................26
12.3 External effects: Policies and income distribution........................27
12.4 Property rights, contracts, and market failures............................28
12.5 Public goods...................................................................................29
12.6 Missing markets: Insurance and lemons.......................................30
12.8 The limits of markets.....................................................................31
12.9 Market failure and government policy..........................................31
Unit 11: Rent-seeking, price-setting and market dynamics..................32
11.9 Non-clearing markets: Rationing, queuing and secondary markets
...............................................................................................................32
11.10 Markets with controlled prices....................................................32
11.11 The role of economic rents..........................................................33
If you liked this summary/ it was useful, please give it a (good) rate on
the website of Stuvia, so I will know :) Good Luck!...............................33
[2]
, Endterm Microeconomics, Institutions and Welfare
Week 5: Unit 7, paragraphs 7.1- 7.7
7.0 Introduction
A firm can maximise its profits in
many ways, for example:
- Apple sets high prices for
iPhones and iPads,
increasing its profits by
charging a price premium.
- Walmart is keeping the
price low. The low price
may attract so many
customers that total profit is
high.
The figure on the right illustrates
the key decisions that a firm makes.
7.1 Breakfast cereal: Choosing a
price
Demand curve: The curve that
gives the quantity consumers will
buy at each possible price.
The “best” method to investigate the potential demand curve of consumers is to vary the prices in the
question. For example: ‘Would you be willing to pay $1,000 for a 10-minute flight in space?’. Ask a
large number of consumers this question, and then you would be able to estimate the proportion of
people willing to pay each price. Hence you can estimate the whole demand curve.
To maximize your profit, you should produce exactly the quantity you expect to sell, and no more.
Then revenue, costs, and profit are given by:
total costs =unit cost × quantity
o =2×𝑄
Total revenue=price × quantity
o =𝑃×𝑄
Profit =total revenue−total costs
o =𝑃×𝑄 − 2×𝑄
So we have a formula for profit:
Profit = (𝑃−2) × 𝑄
This figure shows:
a number of isoprofit
curves for Cheerios.
The highest curve shows
that with every
combination you will
get $60,000 profit
[3]
Microeconomics, Institutions
and Welfare
Endterm, Year 1, period
by Manal Talhi
, Endterm Microeconomics, Institutions and Welfare
Table of Contents
Table of Contents........................................................................................1
Week 5: Unit 7, paragraphs 7.1- 7.7...........................................................3
7.0 Introduction.......................................................................................3
7.1 Breakfast cereal: Choosing a price....................................................3
7.2 Economies of scale and the cost advantages of large-scale
production................................................................................................5
7.3 Production: The cost function for Beautiful cars...............................6
7.4 Demand and isprofit curves: Beautiful Cars......................................7
7.5 Setting price and quantity to maximize profit...................................8
7.6 Looking at profit maximization as marginal revenue and marginal
cost...........................................................................................................8
7.7 Gains from trade................................................................................9
Week 6: Remainder of Unit 7: §7.8 – 7.13................................................11
7.8 The elasticity of demand.................................................................11
7.9 Using demand elasticities in government policies..........................12
7.10 Price-setting, competition and market power...............................12
7.11 Product selection, innovation and advertising..............................13
7.12 Prices, costs and market failure....................................................13
Week 7: Unit 8 + 11.1-11.3.......................................................................15
Unit 8: Supply and demand: price-taking and competitive markets.....15
8.0 Introduction.....................................................................................15
8.1 Buying and selling: Demand and supply..........................................15
8.2 The market and the equilibrium price.............................................15
8.3 Price-taking firms............................................................................17
8.4 Market supply and equilibrium.......................................................17
8.5 Competitive equilibrium: Gains from trade, allocation and
distribution............................................................................................18
8.6 Changes in supply and demand.......................................................19
8.7 The effects of taxes..........................................................................20
8.8 The model of perfect competition....................................................21
8.9 Looking for competitive equilibria..................................................22
[1]
, Endterm Microeconomics, Institutions and Welfare
8.10 Price-setting and price-taking firms..............................................22
Chapter 11: Rent-seeking, price-setting and market dynamics............22
11.1 How people changing prices to gain rents can lead to a market
equilibrium.............................................................................................22
11.2 How market organization can influence prices............................23
11.3 Short-run and long-run equilibria.................................................23
Week 8: Unit 12 excl. §12.7 + §11.9-11.11...............................................25
Unit 12: Markets, efficiency and public policy......................................25
12.1 Market failure: External effects of pollution................................25
12.2 External effects and bargaining....................................................26
12.3 External effects: Policies and income distribution........................27
12.4 Property rights, contracts, and market failures............................28
12.5 Public goods...................................................................................29
12.6 Missing markets: Insurance and lemons.......................................30
12.8 The limits of markets.....................................................................31
12.9 Market failure and government policy..........................................31
Unit 11: Rent-seeking, price-setting and market dynamics..................32
11.9 Non-clearing markets: Rationing, queuing and secondary markets
...............................................................................................................32
11.10 Markets with controlled prices....................................................32
11.11 The role of economic rents..........................................................33
If you liked this summary/ it was useful, please give it a (good) rate on
the website of Stuvia, so I will know :) Good Luck!...............................33
[2]
, Endterm Microeconomics, Institutions and Welfare
Week 5: Unit 7, paragraphs 7.1- 7.7
7.0 Introduction
A firm can maximise its profits in
many ways, for example:
- Apple sets high prices for
iPhones and iPads,
increasing its profits by
charging a price premium.
- Walmart is keeping the
price low. The low price
may attract so many
customers that total profit is
high.
The figure on the right illustrates
the key decisions that a firm makes.
7.1 Breakfast cereal: Choosing a
price
Demand curve: The curve that
gives the quantity consumers will
buy at each possible price.
The “best” method to investigate the potential demand curve of consumers is to vary the prices in the
question. For example: ‘Would you be willing to pay $1,000 for a 10-minute flight in space?’. Ask a
large number of consumers this question, and then you would be able to estimate the proportion of
people willing to pay each price. Hence you can estimate the whole demand curve.
To maximize your profit, you should produce exactly the quantity you expect to sell, and no more.
Then revenue, costs, and profit are given by:
total costs =unit cost × quantity
o =2×𝑄
Total revenue=price × quantity
o =𝑃×𝑄
Profit =total revenue−total costs
o =𝑃×𝑄 − 2×𝑄
So we have a formula for profit:
Profit = (𝑃−2) × 𝑄
This figure shows:
a number of isoprofit
curves for Cheerios.
The highest curve shows
that with every
combination you will
get $60,000 profit
[3]
