Reflections

Phillip Miller, ECO post one

• What did you learn in this module's readings that surprised you?
• The most interesting things I read concerned optimization and marginal analysis.  Also, I enjoyed the treatment of economic vs accounting profit.  I've taking courses that mentioned it before, but this text had a great explanation.
• Explain the difference between price taking and price setting firms.  Give an example of your experience with each.  Discuss the characteristics of the four market structures discussed in your text. 
• A price-taking firm is one that has no market power, operates in a competitive environment, and has the price of its good determined by market forces.  Such markets exist where consumers view competing products as identical and have no reason to pay more.  A price-setting firm is one with a degree of market power who can change its prices without losing all of its customers.  
• We all interact with these firms: to an extent, entry-level products from toe-nail clippers to value-menu burgers have their prices determined by the market.  And firms like Apple and Google operate in oligopolies, and they have some leverage, and strategic incentive, to manipulate their prices relative to their competitors.
• A monopoly is relatively rare these days but occurs when there are large barriers to entry, there are no real competitors, there are no close substitutes to the product, and the firm can charge almost whatever it wants.  Monopolistic competition occurs when there are many, relatively small firms competing who produce differentiated products but are not protected by substantial barriers to entry.  Monopolistic competitors are price-setters because product differentiation bestows a degree of market power.  Pure competition is similar to monopolistic competition except that perfect competitors don't have the market power necessary to set their own price: they are price-takers.  An oligopoly exists when there are only a few large firms supplying a market.  Their business decisions affect each other greatly, and is therefore the most complicated structure to analyze. 
• Discuss how you, or a business, "thinks at the margin" or uses marginal analysis to operate on a daily basis.  ie. give examples of what it means to optimize and how optimization problems are prevalent in your life. 
• I learned "thinking at the margin" a long time ago from a science teacher in high school.  He showed me exactly what our text has explained: that sunk, fixed, and average costs are irrelevant to the decision to do something "one more time."  He emphasized that whatever I had already invested - time, money - the only that that mattered was if "producing" another unit would raise my benefits over my total costs.  This applies, for example, to an essay: sure, I could write another section, go over it one more time, or find someone to proof-read it, but that extra effort might not pay off in an improved grade.
• Concerning optimization, I use calculus-based optimization language in my daily job.  My job is always constrained by time, resources, and physical capability.  I must decide, with the time and effort I have, how much a given piece of furniture needs to be protected, the amount of preparation - like putting blankets, moving objects - required to move the piece, etc.  If I am late to the next appointment, I've failed, just as I've failed if I damaged the piece but arrived on time.  Some pieces, like pine, are lightweight and require little in the way of protection.  Others demand a third person be present for the move.