Posts Tagged ‘Chrysler’

New Terms

Sunday, July 25th, 2010


Market Structure – Term used to describe the organization and nature of a market or an industry, particularly whether it is competitive or non competitive in nature.

Competitive Industry – An industry that consists of many small firms and is easily entered by new competitors.

Non-Competitive Industry – An industry that is dominated by a few large firms and is not easily entered by new competitors.

Price-Taker – Term used to describe the position of the individual small firm in a competitive industry, which is unable to influence the price of its product and is forced to accept (take) whatever price is determined in the market.

Price-Maker – Term used to describe the position of the dominant firm(s) in an industry, which can influence the price of the product.

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Significance of the Price-Marginal Cost Ratio

Sunday, March 28th, 2010


The temptation to shade the price in order to make an extra sale will be particularly strong where fixed costs form a very large proportion of total costs, and marginal costs are very small. If the selling price is set on the basis of average total cost, then it will greatly exceed marginal cost.

It may happen of course that all the increase in sales gained by a price cutting firm is at the expense of just one or two other firms near by. In that case they may find it necessary to match price cuts. Another group of firms may be affected in turn by their price cuts. For example, one filling station located on a particular street may reduce the price of its gasoline. Nearby stations are obliged to match the reduction. But when they cut their price, other stations near them, but far from the original price cutter, are obliged to match  the reduction. A further group becomes affected, until by such a series of chain reactions, all filling stations in the area wind up selling at the low price.

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