Teoria De Las Organizaciones

Activities Unit 4:

1) Perfect competition is the opposite of a monopoly, in which only a single firm supplies a particular good or service, and that firm can charge whatever price it wants because consumers have no alternatives and it is difficult for would-be competitors to enter the marketplace. Under perfect competition, there are many buyers and sellers, and prices reflect supply and demand. Also, consumers have many substitutes if the good or service they wish to buy becomes too expensive or its quality begins to fall short. New firms can easily enter the market, generating additional competition. Companies earn just enough profit to stay in business.

Characteristics:

* All firms sell an identical product.

* All firms are price takers - they cannot control the market price of their product.

* All firms have a relatively small market share.

* Buyers have complete information about the product being sold and the prices charged by each firm.

* The industry is characterized by freedom of entry and exit.

2) Paradox information is when suppliers already have all the information they need to grow appearls themselves. This is the fundamental paradox of information, its value can only be revealed to another party by disclosing the information, while such disclosure destroys its value.

This is a very important point because this kind of information helps suppliers to take decisions.

3) On the basis of risk distribution, an actuary can calculate the insurance rate you would have to ask in order to be able to provide the specified coverage.

At a rate reflecting average risks your product is an attractive to those with higher risks.

Very few people with lower than average risks will take out your insurance policy. For them, the required rate is unattractive. This phenomenon is called adverse selection in insurance economics.

Adverse selection is basically a type of information asymmetry. it is a problem of hidden information, in which one party in a potential transaction is better informed about a relevant variable in the transaction than the other party.

4) 4.4.1 An individual playing Against Nature

when there is an individual decision under uncertainty for example introduce or not to introduce a new product; You can use what is called game tree.

A game tree may have two kinds of nodes:

1) Nodes where an individual has to choose an act.

2) Nodes where nature chooses her moves by means of a random process.

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