Chapter 18: The Markets for the Factors of Production

This chapter talks about factors of production. It talks about capital which is the the economy’s stock of equipment and structures. Examples of this are profit, rent, and interest. The amount of money paid to landowners, workers, etc., depend on the supply and demand of those professions. The factors of production are the inputs used to produce the goods and services. Labor, land, and capital are the three most important factors of production. The demand for a factor of production is a derived demand. Derived demand is the demand for demand for a factor of production is derived from its decision to supply a good in another market. For example, the demand for gas station attendants is inseparably linked to the supply of gasoline. First, one has to analyze factor demand by considering how a competitive,profit maximizing firm decides how much of any factor to buy. The chapter talks about the production function which is the relationship between the quantity of inputs used to make a good and the quantity of output of that good.It also talks about marginal product of labor which is the increase in the amount of output from an additional unit of labor. Diminishing marginal product is the property whereby the marginal product of an input declines as the quantity of input increases. The value of the marginal product is the marginal product of an input times the price of the output. A competitive, profit maximizing firm hires workers up to the point where the value of the marginal product of labor equals the wage. Another important concept is that any event that changes the spply or demand for labor must change the equilibrium wage and the value of the marginal product by the same amount because these must always be equal. The purchase price of land or capital is the price a person pays to own that factor of production indefinitely. Rental price is the price a person pays to use that factor

Chapter 17: Oligopoly

This chapter talks about oligopolies. An oligopoly is a market that has a few sellers. It is different from monopolies because they have one seller. In a monopolistic competition, there are many firms with different products. Finally, in perfect competition there are many firms with identical products. This chapter talks about the concentration ratio which is the percentage of total output in the market supplied by the largest firms. It is usually over fifty percent and includes about four firms. The chapter also talks about collusion which is an agreement among firms in a market about the quantities to produce or the prices to charge. Sometimes, collusions form cartels,which are groups of firms that act in unison. Antirust acts have been set in order to limit the cartels from forming because of the impact that they may have on society. The Nash equilibrium is a situation in which economic participants interacting with one another each choose their best strategy given the strategies given the strategies that all the others have chosen. We also learn about the game theory which is the study of how people behave in strategic situations. In general, when firms in an oligopoly choose on their own how much to produce to maximize profit, they tend to produce a quantity greater than the level produced by monopoly and less than produced by competition.

Chapter 16

Chapter 16 talks about a different economic system from those in a perfectly competitive market or a monopoly. It focuses on monopolistic competitive markets such as an oligopoly. Some characteristics of a monopolisticly competitive market is that it has many firms and free entry. This chapter also talks about two ways in which conopolistically competitive markets are different from competitive markets. One reason is that in a monopolistic competitive market, there is an excess capacity. That means that it operates on the downward sloping part of the ATC curve. Another reason it is different is that each of the firms charges a price that is above the marginal cost of the item. Because the price is set above the marginal cost in a monopolistic competitive market, there are deadweight losses as a result. Another problem is that there can be too many or very few firms which are inefficiencies that are hard to correct by the government. The chapter also talks about how brand names are a problem because firms use them to manipulate consumers and to reduce the competition. Some believe that using brand names to compete gives firms incentives to improve the quality of their products and to lower their prices as much as possible. 

Article 5 Review

This article is achieving success, instead of pursuing economics. Scott Adams, who wrote Dilbert, wrote about how to achieve success by learning from your own mistakes. The difference between the advice Scott gives and the advice others give is to not be guided by your goals. His way of portraying people that are guided by the goals they set themselves, is in a way that shows they set themselves for failure. He talks about how a person is in that state of failure until they have achieved their goals. Of course, when those success is achieved, the satisfaction is immense.  Scott Adams argues that once a person achieves their goals in life, they either lose their motivation or create a new goal in order to enter the failing state before success is achieved again. Scott Adams has an interesting viewpoint against pursuing interests that one is interested or passionate about. The main idea in the article appears to be that once a persons business achieves success, then that person can become passionate about it. Otherwise, one doesn't need passion to start any business.  

Chapter 15: Monopolies

This chapter focuses on monopolies by comparing monopolies to firms in a competitive market. The chapter defines a monopoly as a firm that is the sole seller of a product without any close substitutions. One difference is that a firm in a competitive market is a price taker whereas a monopoly is a price maker. In general, the price charged by monopolies is higher than the marginal cost. But, there goal is the same to that of a firm in a competitive market, to maximize profit. The force of the invisible hand guides competitive market firms whereas monopolies work in their self interest so often, those interests aren't the interest of society. There are three important barriers that may be the cause as to why other firms don't enter the market for monopolies. One reason is that key resources are owned by one firm. The second reason given is that the government sometimes gives a single firm exclusive rights to a product, such as a drug. The third reason given is that the costs of production make a single producer more efficient than a large number of producers. A kind of monopoly that arises because a single firm can supply the good or service to an entire market at a smaller cost than could two or more, is called a natural monopoly. When looking and the demand curves of a competitive market firm and a monopoly, their demand curves are very different. For a competitive market, the demand curve is perfectly elastic whereas for a monopoly, the demand curve is sloping downwards.  When looking at the general graph of a monopoly, in general the price is greater than the marginal revenue and total cost. Therefore, the point of maximum profit is still where the marginal cost and marginal revenue intersect.

Chapter 14: Firms in Competitive Markets

This chapter talks about how the competitive market is affected. It talks about how firms can't change the prices of goods in a competitive market because it would not be convenient to them. It also talks about how in order to maximize profit, firms must find where the marginal cost equals the marginal revenue. It mentions how the effects of single buyers are negligible. Total revenue is proportional to the total output. The chapter talks again about how a competitive market has many buyers and sellers, and the goods that are offered by various sellers are largely the same. Therefore, firms are price takers, not price makers. A shutdown refers to a short-run decision not to produce anything during a specific period of time due to current market conditions. On the other hand, an exit refers to the long-run decision to to leave the market. When shutting down temporarily, the fixed costs still have to be paid by firms. The fixed cost of land is said to be sunk cost when referring to the fixed cost of of a short-run shut down during a season of a firm. In contrast, if a producer decides to shut down completely, they have the opportunity to sell the land. When a firm shuts down, they obviously lose all revenue. The firm shuts down if the revenue that it would get from producing is less than its variable cost in production.

Chapter 13: The Costs of Production

This chapter mainly focuses on how producers decide whether or not producing an item is convenient.  It talks about how an accountant and an economist view profit differently. For example, an accountant only counts the explicit costs whereas an economist considers both the explicit and implicit costs in order to decide whether or not profit is worth investing. The chapter defines total revenue as the amount a firm receives for the sale of an output. The total cost is the market value of the inputs a firm uses in production. The profit is the total revenue minus the total cost. An economic profit is the total revenue minus total cost, including both explicit and implicit costs. Accounting profit is total revenue minus total explicit cost. A production function is the relationship between quantity of inputs used to make a good and the quantity of output of that good. Marginal products are the increase in output that arises from an additional unit of input. The diminishing marginal product is the property whereby the marginal product of an input declines as the quantity of an input increases. The chapter talks about fixed costs which are the costs that do not vary with the quantity of output produced. An example of this would be rent. Variable costs are the costs that do vary with the quantity of output produced. An example would be the water and gas bills which vary depending on how much of the supply is being used.