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[[Economics|Economics Lectures]] - <nowiki>[</nowiki>[[Economics_Lecture_One|1]] - [[Economics_Lecture_Two|2]] - [[Economics_Lecture_Three|3]] - [[Economics_Lecture_Four|4]] - [[Economics_Lecture_Five|5]] - [[Economics_Lecture_Six|6]] - [[Economics_Lecture_Seven|7]] - [[Economics_Lecture_Eight|8]]<nowiki>]</nowiki>
[[Economics|Economics Lectures]] - <nowiki>[</nowiki>[[Economics_Lecture_One|1]] - [[Economics_Lecture_Two|2]] - [[Economics_Lecture_Three|3]] - [[Economics_Lecture_Four|4]] - [[Economics_Lecture_Five|5]] - [[Economics_Lecture_Six|6]] - [[Economics_Lecture_Seven|7]] - [[Economics_Lecture_Eight|8]]<nowiki>]</nowiki>
Seventh Lecture – Competition
Instructor, Andy Schlafly
==Introduction==
“Today the coach was fired because the team is no longer competitive.” “The problem is that the candidate is no longer competitive in that district.” “The competition was intense for the last remaining tickets to the show.” “The race was very competitive, and the fastest runner won.”
“Today the coach was fired because the team is no longer competitive.” “The problem is that the candidate is no longer competitive in that district.” “The competition was intense for the last remaining tickets to the show.” “The race was very competitive, and the fastest runner won.”
Businesses themselves, however, often dislike competition because it can reduce their ability to earn profits. To protect consumers, federal laws limit the ability of businesses to reduce competition.
Businesses themselves, however, often dislike competition because it can reduce their ability to earn profits. To protect consumers, federal laws limit the ability of businesses to reduce competition.
==Perfect Competition==
Perfect competition is an ideal that rarely exists in practice. But the more competitive the market, the better it is for consumers, so it is useful to consider the conditions for perfect competition:
Perfect competition is an ideal that rarely exists in practice. But the more competitive the market, the better it is for consumers, so it is useful to consider the conditions for perfect competition:
4. Fully informed consumers and suppliers are also necessary for perfect competition. If Wendy’s tried to sell a healthy burger but few knew about it, then its competition with greasy burgers by McDonald’s or Burger King is not going to be perfect.
4. Fully informed consumers and suppliers are also necessary for perfect competition. If Wendy’s tried to sell a healthy burger but few knew about it, then its competition with greasy burgers by McDonald’s or Burger King is not going to be perfect.
==Costs==
It can be difficult running a business. Your costs will seem to be always rising. If you are profitable, then you can expect competitors to move into your turf and drive your revenue down.
It can be difficult running a business. Your costs will seem to be always rising. If you are profitable, then you can expect competitors to move into your turf and drive your revenue down.
In a perfectly competitive market, a company continues producing a good or service until its marginal revenue (MR) falls to equal its marginal cost (MC). When MC > MR, then the company is better off not producing the good. There is usually no point in making something that is a money-loser, unless it attracts profits in a different way (that is known as a “loss leader” that attracts products for other goods and services of a company).
In a perfectly competitive market, a company continues producing a good or service until its marginal revenue (MR) falls to equal its marginal cost (MC). When MC > MR, then the company is better off not producing the good. There is usually no point in making something that is a money-loser, unless it attracts profits in a different way (that is known as a “loss leader” that attracts products for other goods and services of a company).
==Homeschool Dinner Event==
To illustrate the practical aspects of microeconomics, consider a dinner event we held in 2004 and 2005. The goal was to maximize attendance while making a small profit.
To illustrate the practical aspects of microeconomics, consider a dinner event we held in 2004 and 2005. The goal was to maximize attendance while making a small profit.
Each student in the class should consider the various committees needed to help accomplish this goal.
Each student in the class should consider the various committees needed to help accomplish this goal.
On the “supply side”:
===On the “supply side”:===
1. Selection Committee. This includes choosing the location (probably a church facility), a caterer (probably nearby), and a date (probably a weekday).
1. Selection Committee. This includes choosing the location (probably a church facility), a caterer (probably nearby), and a date (probably a weekday).
3. Event Committee. This includes designing and printing a written program for guests, and supervising the service of food to guests.
3. Event Committee. This includes designing and printing a written program for guests, and supervising the service of food to guests.
On the “demand side”:
===On the “demand side”:===
1. Ticket Sales Committee. This includes setting the prices, marketing the event, and selling the tickets.
1. Ticket Sales Committee. This includes setting the prices, marketing the event, and selling the tickets.
It is trying to raise money for a good cause, and sets its prices on the high side. A popular, conservative congressman is the guest speaker. Do you think this pricing maximizes the amount raised for the worthy cause? Does this use price discrimination?
It is trying to raise money for a good cause, and sets its prices on the high side. A popular, conservative congressman is the guest speaker. Do you think this pricing maximizes the amount raised for the worthy cause? Does this use price discrimination?
==Assignment==
Read and, if necessary, reread the above lecture. THIS WEEK IS ALSO AN OPPORTUNITY FOR REVIEW OF PRIOR WEEKS.
Read and, if necessary, reread the above lecture. THIS WEEK IS ALSO AN OPPORTUNITY FOR REVIEW OF PRIOR WEEKS.
===Introductory===
1. The best friend of free enterprise is ___________.
1. The best friend of free enterprise is ___________.
3. Until Conservapedia.com began, Wikipedia.com did not have any competition. What often happens to a firm or service when there is no competition? Why?
3. Until Conservapedia.com began, Wikipedia.com did not have any competition. What often happens to a firm or service when there is no competition? Why?
Intermediate: 4. Suppose you own a widget factory having fixed costs of $10,000. In addition to the $10,000, you have variable costs of $2,500 for each widget you make. Worse, the factory can make only 3 widgets in an entire year! Your widget sells for $5,000. Someone offered to buy your factory for $10,000. Should you sell it?
===Intermediate===
4. Suppose you own a widget factory having fixed costs of $10,000. In addition to the $10,000, you have variable costs of $2,500 for each widget you make. Worse, the factory can make only 3 widgets in an entire year! Your widget sells for $5,000. Someone offered to buy your factory for $10,000. Should you sell it?
5. One day, you visit Wal-Mart to see if you can sell it some widgets. Wal-Mart said it has good new and bad news. The good news is that it wants high volume. The bad news is that it wants a price so low that your MC=MR for every unit sold to it. Should you agree? Explain.
5. One day, you visit Wal-Mart to see if you can sell it some widgets. Wal-Mart said it has good new and bad news. The good news is that it wants high volume. The bad news is that it wants a price so low that your MC=MR for every unit sold to it. Should you agree? Explain.
7. Suppose you are running a dinner event at a free facility that has 24 tables seating 8 apiece. Your marginal cost (MC) is $15 per person. Suppose your speaker costs $3500 in fees and expenses. Suppose your demand curve is this: at price P=$15, quantity Q=200; at P=$35, Q=120; at P=$50, Q=70; at P=$60, Q=40; at P=$150, Q=7. How would you price and market your tickets?
7. Suppose you are running a dinner event at a free facility that has 24 tables seating 8 apiece. Your marginal cost (MC) is $15 per person. Suppose your speaker costs $3500 in fees and expenses. Suppose your demand curve is this: at price P=$15, quantity Q=200; at P=$35, Q=120; at P=$50, Q=70; at P=$60, Q=40; at P=$150, Q=7. How would you price and market your tickets?
Honors:
===Honors===
8. “One of the greatest benefits of competition is accountability.” How?
8. “One of the greatest benefits of competition is accountability.” How?