Economics of communication

Flashcards for the exam

Unique aspect of media and communication

• Creative talent in production

• Buyer-seller relationship

• Pricing decisions

• Zero marginal cost

• Market complementarities shape the market structure

• Time

Commonalities that allow conventional economic analysis

Product concept

Market dynamics

Demand concept

Market power

Ability to fix the price

Economic features of information goods

• Intangible (noy physical)

• Non rival in consumption

• Hardly excludible (free-riders)

• Difficult to define ownership

The production function

Equation that describes the process by which firms put together different inputs to obtain an output

Inputs in production function

• Labour (quantity of work)

• Capital (Quantity of money)

Short and long run inputs in production function

Short run, both fixed and variable inputs (labour- varialbe, capital-fixed)

Long run, all inputs are variable

Short run, production function

Only modify one of the 2 inputs

One fixed, calculate MPL

MPL

Marginal product of labour

Quantity of additional production that is obtained by adding one more workerL

Law of Diminishing Returns

In the short run, modify only 1 input

Add 1 —> initially productivity increases at a fast rate

Increase slower rate

Falls, APL crosses MPL in the point where average productivity begins to decrease

• MPL > APL —> add labour, increase productivity

• MPL < APL —> No profitable increase

APL

Average product of labour