MGMT 4A Lecture Notes - Lecture 5: Economic Surplus, Pareto Efficiency, Joe S. Bain
Document Summary
Structure-conduct-performance: conduct of the individual firms and actors in a given industry determines market performance. Embodies various pricing, marketing tactics, and strategies of businesses; price competition, non price competition, advertising, product differentiation strategies to exploit advantages from imperfect competition. Market performance: x-efficiency, allocative efficiency, productive efficiency how society"s resources used. Homogenous product: other firm"s output, ex wheat and coal; firms only compete on price. Demand curve measures social benefits, supply curve measures social costs; social benefits= social costs in a competitive equilibrium. We assume that the market demand curve is horizontal sum of individual demand curves . Revenues cover variable costs, losses= fixed costs. Exchange-traded funds (ex spy) allow you to invest in market indices, rather than individual stocks. In the long run, a perfectly competitive industry will produce where p=average total. In the long run, perfectly competitive firms earn a normal profit. Allocative efficiency : that these goods be allocated among consumers to max consumer satisfaction.
