Scot Wick Blog

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5 th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 16 of 36 Monopolistic Competition   Section 2 of 15 … In a book store you find mystery books, history books, and many others. When you choose a book and buy it, are you participating in a competitive market? The market for books seems competitive, there are many authors and publishers. Buyers in this market have thousands of competing books to choose from. Anyone can enter the industry by writing and publishing a book, limiting sales and profits for each. … But in a way the market for books is monopolistic. Each book is unique, so publishers · have some choice of what price to charge · are price makers rather than price takers The price of books greatly exceeds marginal cost. The price of a typical hardcover book is about $25. The cost of printing one additional copy of the book is less than $5. The market for book

  Comparative Advantage Even if a person or country is not best at making anything, they can still produce and prosper. … First watch this video, Comparative Advantage and the Tragedy of Tasmania.   https://www.youtube.com/watch?v=cwx9fZOL81c … Suppose LeBron James can mow his lawn faster than anyone else. Should he mow his own lawn? James can mow his lawn in 2 hours. In that same 2 hours, he could film a television commercial for Nike and earn $50,000. … Dave, the boy next door, can mow James' lawn in 4 hours. In that same 4 hours, Dave could work at McDonald's and earn $40. James has an absolute advantage over Dave in mowing lawns because he can do the work with a lower input of time. But Dave has a comparative advantage in lawn mowing, because · James' opportunity cost of mowing the lawn is $50,000, not making the Nike commercial · Dave’s opportunity cost of mowing the lawn is $40, not working at McDonalds   Rather than mowing his own lawn

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5 th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 16 of 36 Monopolistic Competition Section 1 of 15 … Chapter 16 – Monopolistic Competition - Topics Between Monopoly and Perfect Competition Competition With Differentiated Products The Monopolistically Competitive Firm In the Short Run The Long-Run Equilibrium Monopolistic Versus Perfect Competition Monopolistic Competition and the Welfare of Society Insufficient Variety As a Market Failure The Debate Over Advertising Advertising and the Price of Eyeglasses Advertising As a Signal of Quality Brand Names

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5 th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 15 of 36 Monopoly Section 31 of 31 … Table 2 here … Figure 8 here … This chapter we have discussed the behavior of firms that have total or some monopoly power. This results in their having total or some control over prices they charge. We have seen these firms behave differently from perfectly competitive firms. Table 2 summarizes the key similarities and differences between competitive and monopoly markets. … Per Figure 8, from the standpoint of public policy the crucial results of monopoly are it · produces less than the socially efficient quantity · charges a price above marginal revenue and marginal cost · causes deadweight losses, where maximum total producer + supplier surplus is not attained In various cases, these inefficiencies · can be mitigated

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5 th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 15 of 36 Monopoly Section 30 of 32 … Government policymakers can respond to the problem of monopoly in four ways ·1· try to make monopolized industries more competitive ·2· regulate behavior of the monopolies ·3· turn some private monopolies into public enterprises ·4· do nothing at all … ·3· Turn some private monopolies into public enterprises Rather than regulating a natural monopoly run by a private firm, the government can run the monopoly itself. This is common in many European countries, where the government owns and operates utility companies such as water, electric, and telephone. In the United States first-class mail delivery is considered a natural monopoly and the federal government runs the Postal Service as an independent agency. … With natural monopolies economists generally prefer private to public owne

Minimum Wage Increases Mandated by Government Are Lose-Lose-Lose for Workers First watch this short video:  Is Raising the Minimum Wage a Bad Idea? https://www.youtube.com/watch?v=9aCpaON5NyE … Most economists believe the demand for labor is elastic, with a relatively horizontal labor demand curve, as in Figure 1. This means -a 1% increase in wages -causes a more than 1% number of workers not demanded by employers With natural free-market equilibrium wage A, total wages earned by all minimum wage workers is the square area AED0. After the newly government-mandated higher minimum wage B, employment falls to C, total wages earned falls to BFC0. … Lose #1 The minimum wage increase from wage A to wage B, results in -a decrease in number of minimum wage workers employed, moving from D to C At higher minimum wage B they are largely replaced with: -higher value workers including college students, retirees, and housewives who before thought the free-market minimum

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5 th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 15 of 36 Monopoly Section 29 of 32 … Figure 10 here … Figure 10 – Marginal Cost Pricing for a Natural Monopoly Because a natural monopoly has declining average total cost marginal cost is less than average total cost. If regulators require a natural monopoly to charge a price equal to marginal cost price will be below average total cost and the monopoly will lose money, shaded “Loss” area. … Government policymakers can respond to the problem of monopoly in four ways ·1· try to make monopolized industries more competitive ·2· regulate behavior of the monopolies ·3· turn some private monopolies into public enterprises ·4· do nothing at all … ·2· Regulate behavior of the monopolies Regulation is common in the case of natural monopolies such as water and electric ut

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5 th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 15 of 36 Monopoly Section 28 of 32 … Monopolies fail to allocate resources efficiently. Unlike competitive markets they produce less than the socially desirable quantity of output. This is because they charge prices above marginal cost creating deadweight loss. Policymakers in the government can respond to the problem of monopoly in four ways ·1· try to make monopolized industries more competitive ·2· regulate behavior of the monopolies ·3· turn some private monopolies into public enterprises ·4· do nothing at all … ·1· Try to make monopolized industries more competitive. If Coca-Cola and PepsiCo wanted to merge, the proposed merger would be examined by the federal government. The lawyers and economists in the Department of Justice might decide a merger between these two large soft drink companies would make the U.S. so