F583 - Economics of Work and Leisure - June 2014 Watch

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Fas
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#221
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(Original post by NottsYellowJnr)
My understanding is that due to the reduction in barriers to entry they must now operate to achieve normal profits otherwise they would be subject to hit and run tactics. This is where AR = AC, neither productively or allocatively efficient.
today is dedicated to learning the leisure markets section, so i'll have a look and get back to you on this point haha (you are probably right though)
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KateEmma23
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#222
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Do we need to know a leisure industry of our choice?
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Pokims1996
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#223
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(Original post by KateEmma23)
Do we need to know a leisure industry of our choice?
Yes, some essay questions could ask you to apply a leisure industry of your choice to monopoly, oligopoly and monopolistically competitve, so you'll most likely need an example for these three
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faithiskey
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#224
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(Original post by Pokims1996)
Yes, some essay questions could ask you to apply a leisure industry of your choice to monopoly, oligopoly and monopolistically competitve, so you'll most likely need an example for these three
What are examples of monopolistically competitive markets?

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Nash96
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#225
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Can we just learn about one leisure market or do we need to know all of them?

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KateEmma23
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#226
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(Original post by Pokims1996)
Yes, some essay questions could ask you to apply a leisure industry of your choice to monopoly, oligopoly and monopolistically competitve, so you'll most likely need an example for these three
Thanks would you recommend any industry's to learn?
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Pokims1996
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#227
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(Original post by faithiskey)
What are examples of monopolistically competitive markets?

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Our class like to use travel agents. They have relatively low barriers to entry (all you need is an office, contacts to hotels etc), product differentiation in the form of offering holidays in "niche" markets, therefore making them able to earn SR abnormal profits - then long run normal profits

Any leisure market with lots of small firms can be classed a monopolistically competitive. Football teams, cafes, hairdressers, etc
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Pokims1996
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#228
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(Original post by KateEmma23)
Thanks would you recommend any industry's to learn?
I personally like to use travel agents as an example for either oligopoly OR monopolistically competitive (as they show characteristics of both markets). I'm a bit stumped for an example of a monopoly - maybe BBC?
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YAAM
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#229
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(Original post by Pokims1996)
Our class like to use travel agents. They have relatively low barriers to entry (all you need is an office, contacts to hotels etc), product differentiation in the form of offering holidays in "niche" markets, therefore making them able to earn SR abnormal profits - then long run normal profits

Any leisure market with lots of small firms can be classed a monopolistically competitive. Football teams, cafes, hairdressers, etc
I am sorry to interrupt but what does "niche" mean?
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Pokims1996
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#230
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(Original post by YAAM)
I am sorry to interrupt but what does "niche" mean?
"Niche" is basically a very small part of the market may not have been exploited yet. This could be holidays such as romantic holidays, holidays for elderly people, holidays to new locations.
In the long run, it is likely that a small 'niche' market will open up, and lots of travel agencies will begin promoting holidays there e.g Sharm El Sheikh in Egypt!
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karrlt
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#231
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(Original post by PJ.)
What are the characteristics of a monopoly?

So far I have:
1 dominant firm, profit maximisers, high barriers to entry, supernormal profits in LR, allocatively and productively inefficient.

Am I missing any?
Price discrimination, large sunk costs, price-maker, potential for strong dynamic efficiency but danger of X-inefficiency.

Think that's all


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Fas
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#232
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(Original post by KateEmma23)
Thanks would you recommend any industry's to learn?
definitely learn the TV broadcasting industry! there's an unbelievably good number of examples providing evidence for that industry being close to each type of market structure! if the essay "using a leisure industry of your choice, Discuss the extent to which it is a monopoly" then i would definitely use the TV broadcasting industry (so you could talk about Sky's 41% control over the platform market, the BBC's state monopoly, and the existence of super-normal profits and barriers to entry) - you might be a bit weaker on the analysis than you would be with other leisure industries (because there's not loads of evidence to suggest it's a monopoly) but you could floor it with the evaluation, there's plenty of evidence to suggest its close to an oligopoly or monopolistic competition
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Fas
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#233
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(Original post by NottsYellowJnr)
My understanding is that due to the reduction in barriers to entry they must now operate to achieve normal profits otherwise they would be subject to hit and run tactics. This is where AR = AC, neither productively or allocatively efficient.
after learning it :

you are right in that respect, but i think another feature is that due to the significantly low barriers to entry, firms won't want other firms undercutting them so they will employ entry-limit pricing strategies, which in turn will bring the price down closer to marginal cost (P=MC in a fully contestable market) hence allocative efficiency will be increased.

not too sure about the productive efficiency bit, my understanding of it would be that since P will be lower they will try and retain their profit margins by attempting to produce on the lowest point of the LRAC curve as this is where their long run average costs are lowest, but i'm not sure. if anyone else could shed some light on this that would be great
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Nash96
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#234
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(Original post by Fas)
after learning it :

you are right in that respect, but i think another feature is that due to the significantly low barriers to entry, firms won't want other firms undercutting them so they will employ entry-limit pricing strategies, which in turn will bring the price down closer to marginal cost (P=MC in a fully contestable market) hence allocative efficiency will be increased.

not too sure about the productive efficiency bit, my understanding of it would be that since P will be lower they will try and retain their profit margins by attempting to produce on the lowest point of the LRAC curve as this is where their long run average costs are lowest, but i'm not sure. if anyone else could shed some light on this that would be great
As they cannot exploit economies of scale then wouldn't their costs be higher than they could possibly be so they would not be achieving productive efficiency?

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Qwerty Pies
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#235
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Please could someone mention the factors that affect the price elasticity of the supply and demand for labour? My notes are very brief on the matter. Thanks.
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Fas
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#236
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(Original post by Nash96)
As they cannot exploit economies of scale then wouldn't their costs be higher than they could possibly be so they would not be achieving productive efficiency?

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this was what i was getting confused over - whether firms in a contestable market could exploit economies of scale or not. im guessing they can't?
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Nash96
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#237
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(Original post by Fas)
this was what i was getting confused over - whether firms in a contestable market could exploit economies of scale or not. im guessing they can't?
I wouldn't have thought so, as they don't control enough of the market to be able to produce enough to get the full benefit. I may be wrong though, economics isn't my strongest subject lol

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Fas
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#238
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(Original post by Qwerty Pies)
Please could someone mention the factors that affect the price elasticity of the supply and demand for labour? My notes are very brief on the matter. Thanks.
err for the price elasticity of demand for labour :

PED for the product - if the demand for the firms' products is highly inelastic, then if there is an increase in the wage rate of workers, firms will easily just be able to increase prices of their products without incurring a fall in demand for their product (because its inelastic) hence their demand for labour will not fall, thus resulting in an inelastic demand for labour. same applies if PED for their products is highly elastic.

Ease of factor substitution - if firms can substitute capital for labour very easily, then a rise in the wage rate is likely to increase firms costs and impact on their profit margins, thus to retain their profit margins and not reduce their output of goods and services, firms will just substitute in extra capital (so machinery etc) for labour, hence a rise in the wage rate will cause a fall in the demand for labour, thus easy factor substitution will result in the demand for labour being elastic. Again same applies vica-versa, if firms cannot easily substitute capital for labour (so it actually costs them more) then a rise in the wage rate won't reduce demand for labour.

Proportion of Wage Costs - if firms are quite capital-intensive anyway in their production, hence wage costs make up a very small proportion of their total costs, then a rise in the wage rate will not increase their total costs by very much thus demand for labour may not fall hence demand for labour will be price-inelastic.

Other factors include the time period and the level of qualifications and skills, however they're fairly self-explanatory. hope that helps
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Fas
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#239
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(Original post by Nash96)
I wouldn't have thought so, as they don't control enough of the market to be able to produce enough to get the full benefit. I may be wrong though, economics isn't my strongest subject lol

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nah i think what you've put is right actually! thanks
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karrlt
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#240
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(Original post by PJ.)
Are firms in a monopolistic competition market price-makers or price-takers?
They have slight price-making ability in the short run through selling differentiated products, but in the long run they have no price-making ability due to the very low barriers to entry and are therefore price-takers.


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