Returns to Scale

The measure of increased output associated with increases in all inputs is fundamental to the long-ran nature of the firm's production process. How does the output of the firm change as its inputs are proportionately increased If output more than doubles when inputs are doubled, there are increasing returns to scale. This might arise because the larger scale of operation allows managers and workers to specialize in their tasks and make use of more sophisticated, large-scale factories and...

The Industrys Long Run Supply Curve

In our analysis of short-run supply, we first derived the firm's supply curve and then showed how the horizontal summation of individual firms' supply curves generated a market supply curve. We cannot analyze long-run supply in the same way, however, because in the long run firms enter and exit the market as the market price changes. This makes it impossible to sum up supply curves-we don't know which firms' supplies to add. To determine long-run supply, we assume all firms have access to the...

The Short Run Market Supplu Curue

The short-run market supply curve shows the amount of output that the industry will produce in the short run for every possible price. The industry's output is the sum of the quantities supplied by all the individual firms. Therefore, the market supply curve can be obtained by adding their supply curves. Figure 8.8 shows how this is done when there are only three firms, all of which have different short-run production costs. Each firm's marginal cost curve is drawn only for the portion that...

Production with Two Outputs Economies of Scope

Many firms produce more than one product. Sometimes a firm's products are closely linked to one another-a chicken farm produces poultry and eggs, an automobile company produces automobiles and trucks, and a university produces teaching and research. Other times,firms produce products that are physically unrelated. In both cases, however, a firm is likely to enjoy production or cost advantages when it produces two or more products. These advantages could result from the joint use of inputs or...

The Snob Effect

Snob Effect

Network externalities are sometimes negative. Consider the snob effect, which refers to the desire to own exclusive or unique goods. The quantity demanded of a snob good is higher the fewer the people who own it. Rare works of art, specially designed sports cars, and made-to-order clothing are snob goods. Here, the value I get from a painting or sports car is in part the prestige, status, and exclusivity resulting from the fact that few other people own one like it. Figure 4.15 illustrates the...

Revealed Preference

Economics Revealed Preferred

In Section 3.1 we saw how an individual's preferences could be represented by a series of indifference curves. Then in Section 3.3, we saw how preferences determine choices, given a budget constraint. Can this process be reversed If we know the choices a consumer has made, can we determine her preferences We can, if we have information about a sufficient number of choices that are made when prices and income levels vary. The basic idea is simple. If a consumer chooses one market basket over...

Contents

PART I Introduction Markets and Prices 1.1 The Use and Limitations of Microeconomic Theory 4 1.2 Positive Versus Normative Analysis 5 1.3 Why Study Microeconomics 8 Corporate Decision Making Ford Introduces the Taurus 8 Public Policy Design Automobile- Emission Standards 9 Competitive Versus Noncompetitive Markets 11 1.5 Real Versus Nominal Prices 13 2 THE BASICS OF SUPPLY AND DEMAND 17 2.2 Shifts in Supply and Demand 20 2.3 Elasticities of Supply and Demand 28 2.4 Short-Run Versus Long-Run...