![Marginal Factor Cost = Marginal Revenue Product
Price discrimination or price differentiation is a pricing strategy where identical
or largely similar goods or services are transacted at different prices by the same provider in
different markets or territories. Price discrimination or price differentiation is a pricing
strategy where identical or largely similar goods or services are transacted at different prices
by the same provider in different markets or territories.[1][2][3] Price differentiation is
distinguished from product differentiation by the more substantial difference in production
cost for the differently priced products involved in the latter strategy.[3] Price differentiation
essentially relies on the variation in the customers' willingness to pay.[2][3]
The term differential pricing is also used to describe the practice of charging different prices
to different buyers for the same quality and quantity of a product,[4] but it can also refer to a
combination of price differentiation and product differentiation.[3] Other terms used to refer to
price discrimination include equity pricing, preferential pricing,[5] and tiered pricing.[6]
Within the broader domain of price differentiation, a commonly accepted classification dating
to the 1920s is:[7][
In microeconomictheory,an indifference curveisa graph showingdifferent
bundlesof goodsbetweenwhichaconsumeris indifferent.Thatis,ateach pointonthe curve, the
consumerhasno preference forone bundle overanother.
n microeconomic theory, an indifference curve is a graph showing different bundles of
goods between which a consumer is indifferent. That is, at each point on the curve, the
consumer has no preference for one bundle over another. One can equivalently refer to each
point on the indifference curve as rendering the same level of utility (satisfaction) for the
consumer. In other words an indifference curve is the locus of various points showing
different combinations of two goods providing equal utility to the consumer. Utility is then a
device to represent preferences rather than something from which preferences come.[1] The
main use of indifference curves is in the representation of potentially observable demand
patterns for individual consumers over commodity bundles.[2]
An oligopolyis a market form in which a market or industry is dominated by a small
number of sellers (oligopolists). Oligopolies can result from various forms of collusion which
reduce competition and lead to higher prices for consumers. Oligopoly has its own market
structure. [1]
With few sellers, each oligopolist is likely to be aware of the actions of the others. According
to game theory, the decisions of one firm therefore influence and are influenced by the
decisions of other firms. Strategic planning by oligopolists needs to take into account the
likely responses of the other market participants.](https://image.slidesharecdn.com/econotes-160211100207/85/Eco-notes-2-320.jpg)
![money, excluding bartered goods, while other measures may attempt to include bartered
goods by imputing monetary values to them. [1]
Difficulties in Measurement of National Income
There are many difficulties when it comes to measuring national income, however these can
be grouped into conceptual difficulties and practical difficulties:
ConceptualDifficulties
Inclusionof Services:There hasbeensome debate aboutwhethertoinclude servicesinthe
countingof national income,andif itcountsas output.Marxianeconomistsare of the belief
that servicesshouldbe excludedfromnational income,mostothereconomiststhoughare in
agreementthatservicesshouldbe included.
IdentifyingIntermediate Goods:The basicconceptof national income istoonlyinclude final
goods,intermediate goodsare neverincluded,butinrealityitisveryhardto draw a clear
cut line asto what intermediate goodsare.Manygoodscan be justifiedasintermediate as
well asfinal goodsdependingontheiruse.
IdentifyingFactorIncomes:Separatingfactorincomesandnonfactor incomesisalsoa huge
problem.Factorincomesare those paidinexchange forfactorserviceslike wages,rent,
interestetc.Nonfactorare sale of sharessellingoldcarspropertyetc.,butthese are made
to looklike factorincomesandhence are mistakenlyincludedinnational income.
Servicesof Housewivesandothersimilarservices:National income includesthose goodsand
servicesforwhichpaymenthasbeenmade,butthere are scoresof jobs,forwhichmoneyas
such isnot paid,alsothere are jobswhichpeople dothemselveslikemaintainthe gardens
etc.,so if theyhiredsomeone else todothisforthem, thennational income wouldincrease,
the argumenttheniswhy are these acts notaccountedfor now,butthe biggerissue would
be how to keepatrack of these activitiesandinclude theminnationalincome.
PracticalDifficulties
UnreportedIllegal Income:Sometimes,peopledon'tprovide all the rightinformationabout
theirincomestoevade taxes sothisobviouslycausesdisparitiesinthe countingof national
income.
NonMonetizedSector:Inmanydevelopingnations,thereisthisissue thatgoodsand
servicesare tradedthroughbarter,i.e.withoutanymoney.Suchgoodsandservicesshould
be includedinaccountingof national income,butthe absence of datamakesthisinclusion
difficult.
Cost curve](https://image.slidesharecdn.com/econotes-160211100207/85/Eco-notes-4-320.jpg)
![In economics,acost curve is a graphof the costs ofproduction as a
function of total quantity produced. In a free market economy,
productively efficient firms use these curves to find the optimal point
of production(minimizing cost),and profit maximizing firms can use
them to decide output quantities to achieve those aims.There are
various types of cost curves,all relatedto each other,including total
and average cost curves,and marginal ("for each additional unit")
cost curves,which are equal to the differential of the total cost curves.
Some are applicable to the short run, others to the long run. Short-run
average variable cost curve (SRAVC)
Short-run average variable cost curve (SRAVC)
Average variable cost (which is a short-run concept) is the
variable cost (typically labor cost) per unit of output:
SRAVC = wL / Q where w is the wage rate, L is the
quantity of labor used, and Q is the quantity of output
produced. The SRAVC curve plots the short-run average
variable cost against the level of output and is typically
drawn as U-shaped. Long-run average cost curve (LRAC)
Typical long run average cost curve
The long-run average cost curve depicts the cost per unit of output in the long run—that is,
when all productive inputs' usage levels can be varied. All points on the line represent least-
cost factor combinations; points above the line are attainable but unwise, while points below
are unattainable given present factors of production. The behavioral assumption underlying
the curve is that the producer will select the combination of inputs that will produce a given
output at the lowest possible cost. Given that LRAC is an average quantity, one must not
confuse it with the long-run marginal cost curve, which is the cost of one more unit.[3]:232 The
LRAC curve is created as an envelope of an infinite number of short-run average total cost
curves, each based on a particular fixed level of capital usage](https://image.slidesharecdn.com/econotes-160211100207/85/Eco-notes-5-320.jpg)
Eco notes
- 1. Cardinal Utilityisthe ideathat economicwelfare canbe directlyobservable.Forexample,people may be able to expressthe utilitythatconsumptiongivesforcertaingoods.Thisisimportantfor welfare economicswhichtriestoputvaluesonconsumption. Cardinal utility analysis is based on the cardinal measurement of utility which assumes that utility is measurable and additive. This theory was developed by neo-classical economists like Marshall, Pigou, Robertson etc. It is expressed as a quantity measured in hypothetical units which called utils. If a consumer imagines that one mango has 8 utils and an apple 4 utils, it implies that the utility of mango is twice than of an apple. nternal and external economies and diseconomies of scale External economies and diseconomies External economies and diseconomies of scale are the benefits and costs associated with the expansion of a whole industry and result from external factors over which a single firm has little or no control. External economies of scale include the benefits of positive externalities enjoyed by firms as a result of the development of an industry or the whole economy. For example, as an industry develops in a particular region an infrastructure of transport of communications will develop, which all industry members can benefit from. Specialist suppliers may also enter the industry and existing firms may benefit from their proximity. External diseconomies are costs which are outside the control of a single firm and result of the growth of a specific industry. For example, negative externalities, such as road congestion, can result from the growth of an industry in a specific region. Resources may become exhausted and the price of resources may rise as demand outstrips supply. MARGINAL PRODUCTIVITY THEORY OF DISTRIBUTION: 1. The market price for a factor of production is determined by the supply and demand for that factor. 2. Demand for a factor of production is derived from the demand for the things it helps produce. 3. Demand by a firm for a factor of production is the marginal productivity schedule of the factor. 4. Cost-minimizing firms will hire factors of production until the cost of hiring an additional unit of the factor, the marginal factor cost, equals the revenue gained from selling the additional output created by using that additional unit of the factor, the Value of Marginal Product or Marginal Revenue Product.
- 2. Marginal Factor Cost = Marginal Revenue Product Price discrimination or price differentiation is a pricing strategy where identical or largely similar goods or services are transacted at different prices by the same provider in different markets or territories. Price discrimination or price differentiation is a pricing strategy where identical or largely similar goods or services are transacted at different prices by the same provider in different markets or territories.[1][2][3] Price differentiation is distinguished from product differentiation by the more substantial difference in production cost for the differently priced products involved in the latter strategy.[3] Price differentiation essentially relies on the variation in the customers' willingness to pay.[2][3] The term differential pricing is also used to describe the practice of charging different prices to different buyers for the same quality and quantity of a product,[4] but it can also refer to a combination of price differentiation and product differentiation.[3] Other terms used to refer to price discrimination include equity pricing, preferential pricing,[5] and tiered pricing.[6] Within the broader domain of price differentiation, a commonly accepted classification dating to the 1920s is:[7][ In microeconomictheory,an indifference curveisa graph showingdifferent bundlesof goodsbetweenwhichaconsumeris indifferent.Thatis,ateach pointonthe curve, the consumerhasno preference forone bundle overanother. n microeconomic theory, an indifference curve is a graph showing different bundles of goods between which a consumer is indifferent. That is, at each point on the curve, the consumer has no preference for one bundle over another. One can equivalently refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer. In other words an indifference curve is the locus of various points showing different combinations of two goods providing equal utility to the consumer. Utility is then a device to represent preferences rather than something from which preferences come.[1] The main use of indifference curves is in the representation of potentially observable demand patterns for individual consumers over commodity bundles.[2] An oligopolyis a market form in which a market or industry is dominated by a small number of sellers (oligopolists). Oligopolies can result from various forms of collusion which reduce competition and lead to higher prices for consumers. Oligopoly has its own market structure. [1] With few sellers, each oligopolist is likely to be aware of the actions of the others. According to game theory, the decisions of one firm therefore influence and are influenced by the decisions of other firms. Strategic planning by oligopolists needs to take into account the likely responses of the other market participants.
- 3. Definition: Law of Equi Marginal Utility "A person can get maximum utility with his given income when it is spent on different commodities in such a way that the marginal utility of money spent on each item is equal". It is clear that consumer can get maximum utility from the expenditure of his limited income. He should purchase such amount of each commodity that the last unit of money spend on each item provides same marginal utility. Assumptions of the Law of Equi Marginal Utility: 1. There is no change in the prices of the goods. 2. The income of consumer is fixed. 3. The marginal utility of money is constant. 4. Consumer has perfect knowledge of utility obtained from goods. 5. Consumer is normal person so he tries to seek maximum satisfaction. 6. The utility is measurable in cardinal terms. 7. Consumer has many wants. 8. The goods have substitutes. Opportunity Costs The opportunity cost of a good or of performing an action, also known as the greatest cost, is the lost value of alternate options that could have been chosen, rather than the one that was chosen. If A gives twice as much pleasure as B, and there is no C that gives more pleasure than B and is comparable (such as uses time, effort, or some other resource), then A's opportunity cost is the benefit of B because that is the difference in resulting happiness. In this particular scenario, the opportunity cost of A is not a good indicator of its value, because it says that A is worth only as much as B, which is not the case. Normally, there would be many alternate uses for the resources of A/B, so that there would not be such a notable difference, and so A and B would be similar in benefits, B and C would be similar in benefits, etc. In such a case where the differences are minor, the opportunity cost of A would be similar to that of B, and that would reflect their similar benefits. Measures ofnational income and output From Wikipedia,the free encyclopedia A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product (GDP), gross national product (GNP), net national income (NNI), and adjusted national income (NNI* adjusted for natural resource depletion). All are specially concerned with counting the total amount of goods and services produced within some "boundary". The boundary is usually defined by geography or citizenship, and may also restrict the goods and services that are counted. For instance, some measures count only goods and services that are exchanged for
- 4. money, excluding bartered goods, while other measures may attempt to include bartered goods by imputing monetary values to them. [1] Difficulties in Measurement of National Income There are many difficulties when it comes to measuring national income, however these can be grouped into conceptual difficulties and practical difficulties: ConceptualDifficulties Inclusionof Services:There hasbeensome debate aboutwhethertoinclude servicesinthe countingof national income,andif itcountsas output.Marxianeconomistsare of the belief that servicesshouldbe excludedfromnational income,mostothereconomiststhoughare in agreementthatservicesshouldbe included. IdentifyingIntermediate Goods:The basicconceptof national income istoonlyinclude final goods,intermediate goodsare neverincluded,butinrealityitisveryhardto draw a clear cut line asto what intermediate goodsare.Manygoodscan be justifiedasintermediate as well asfinal goodsdependingontheiruse. IdentifyingFactorIncomes:Separatingfactorincomesandnonfactor incomesisalsoa huge problem.Factorincomesare those paidinexchange forfactorserviceslike wages,rent, interestetc.Nonfactorare sale of sharessellingoldcarspropertyetc.,butthese are made to looklike factorincomesandhence are mistakenlyincludedinnational income. Servicesof Housewivesandothersimilarservices:National income includesthose goodsand servicesforwhichpaymenthasbeenmade,butthere are scoresof jobs,forwhichmoneyas such isnot paid,alsothere are jobswhichpeople dothemselveslikemaintainthe gardens etc.,so if theyhiredsomeone else todothisforthem, thennational income wouldincrease, the argumenttheniswhy are these acts notaccountedfor now,butthe biggerissue would be how to keepatrack of these activitiesandinclude theminnationalincome. PracticalDifficulties UnreportedIllegal Income:Sometimes,peopledon'tprovide all the rightinformationabout theirincomestoevade taxes sothisobviouslycausesdisparitiesinthe countingof national income. NonMonetizedSector:Inmanydevelopingnations,thereisthisissue thatgoodsand servicesare tradedthroughbarter,i.e.withoutanymoney.Suchgoodsandservicesshould be includedinaccountingof national income,butthe absence of datamakesthisinclusion difficult. Cost curve
- 5. In economics,acost curve is a graphof the costs ofproduction as a function of total quantity produced. In a free market economy, productively efficient firms use these curves to find the optimal point of production(minimizing cost),and profit maximizing firms can use them to decide output quantities to achieve those aims.There are various types of cost curves,all relatedto each other,including total and average cost curves,and marginal ("for each additional unit") cost curves,which are equal to the differential of the total cost curves. Some are applicable to the short run, others to the long run. Short-run average variable cost curve (SRAVC) Short-run average variable cost curve (SRAVC) Average variable cost (which is a short-run concept) is the variable cost (typically labor cost) per unit of output: SRAVC = wL / Q where w is the wage rate, L is the quantity of labor used, and Q is the quantity of output produced. The SRAVC curve plots the short-run average variable cost against the level of output and is typically drawn as U-shaped. Long-run average cost curve (LRAC) Typical long run average cost curve The long-run average cost curve depicts the cost per unit of output in the long run—that is, when all productive inputs' usage levels can be varied. All points on the line represent least- cost factor combinations; points above the line are attainable but unwise, while points below are unattainable given present factors of production. The behavioral assumption underlying the curve is that the producer will select the combination of inputs that will produce a given output at the lowest possible cost. Given that LRAC is an average quantity, one must not confuse it with the long-run marginal cost curve, which is the cost of one more unit.[3]:232 The LRAC curve is created as an envelope of an infinite number of short-run average total cost curves, each based on a particular fixed level of capital usage
- 6. Law of variable proportion The Law of Variable Proportions which is the new name of the famous Law of Diminishing Returns. →According to Stigler” "As equal increments of one input are added, the inputs of other productive services being held constant, beyond a certain point, the resulting increments of produce will decrease i.e., the marginal product will diminish". →According to Paul Samulson "An increase in some inputs relative to other fixed inputs will in a given state of technology cause output to increase, but after a point, the extra output resulting from the same addition of extra inputs will become less". The law of variable proportions states that as the quantity of one factor is increased, keeping the other factors fixed, the marginal product of that factor will eventually decline. This means that upto the use of a certain amount of variable factor, marginal product of the factor may increase and after a certain stage it starts diminishing. When the variable factor becomes relatively abundant, the marginal product may become negative. Assumptions of Law. →Constant technology--- This law assumes that technology does not change throughout the operation of the law. →Fixed amount of some factors.—One factor of production has to be fixed for this law. → Possibility of varying factor proportions—This law assumes that variable factors can be --changed in the short run. In economics, a perfect market is defined by several conditions, collectively called perfect competition. Among these conditions are Perfect market information No participant with market power to set prices Non intervention by governments No barriers to entry or exit Equal access to factors of production Profit maximization No Externalities
- 7. Price Determination in Economics For many consumers, price seems to change with a one-way ratchet set to "up." However, economists argue that price is actually set by market forces, balancing supply and demand in order to optimize output with minimal waste. Although it may seem that prices are set randomly, economists explain that price determination is a rational process calculated in a straightforward manner. What is Monopoly? Monopoly is when a single company owns all or the majority of the market for a product or service sold. When a monopoly situation exists in the market, this means that there is one large seller who has the greatest market power, which results in very low levels of competition. Since competition is low, such large monopolistic market players are able to charge high prices and sell inferior products. An example would be public monopolies formed by governments for the provision of public goods such as water and electricity. Another example of a market with monopoly would be a pharmaceuticals company which discovered a cure for a disease. This innovation will allow the firm to patent the drug so that it cannot be produced by another competitor during the period for which the patent lasts. This will give the pharmaceutical company a monopoly effect in the market. What is Monopolistic Competition? A monopolistic market is one where there are a large number of buyers but a very few number of sellers. The players in these types of markets sell goods which are different to each other and, therefore, are able to charge different prices depending on the value of the product that is offered to the market. In a monopolistic competition situation, since there are only a few number of sellers, one larger seller controls the market; therefore, has control over prices, quality, and product features. However, such a monopoly is said to last only within the short run, as such market power tends to disappear in the long run as new firms enter the market creating a need for cheaper products. What is the difference between Monopolistic Competition and Monopoly?
- 8. Monopoly and Monopolistic competition are similar because each market structure has a large number of buyers and one or a very few number of sellers. However, monopolistic markets have few barriers to entry for new firms, whereas monopoly markets have high entry barriers because the market is controlled by one large company. Monopoly markets are regulated by competitive commissions, to ensure that monopoly players do not fully control market dynamics.