unit 4 ap micro

Imperfect Competition

Any market structure that is not perfectly competitive; includes monopolies, monopolistic competition, and oligopolies.

Pure (perfect) Monopoly

A market with only one firm producing a unique product with no close substitutes.

Monopolistic Competition

A market with many firms selling similar but not identical products.

Oligopoly

A market dominated by a few large firms that may collude or compete.

Price Maker

A firm that has control over the price of its product.

Price Discrimination

Charging different prices to different buyers for the same product.

Non-price competition

Competing through advertising, brand image, or product quality instead of lowering prices.

Duopoly

A market controlled by only two firms.

Homogeneous Oligopoly

An oligopoly in which all firms sell identical products.

Differentiated Oligopoly

An oligopoly where firms sell similar but slightly different products.

Price leadership

When one dominant firm sets the price and other firms in the market follow.

Collusion

An agreement among firms to fix prices, limit output, or divide markets to increase profits.

Barriers to Entry

Obstacles that make it difficult for new firms to enter a market, such as high costs or patents.

Fair-Return Price

The price that allows a monopoly to earn normal profit (where P = ATC).

Socially Optimal Price

The price that achieves allocative efficiency (where P = MC).

Natural Monopoly

A market where a single firm can produce the entire output at a lower cost than multiple firms.

Game Theory (Prisoner’s Dilemma)

The study of strategic interactions where each player’s outcome depends on the actions of others.

Nash Equilibrium

A situation where all players choose their best strategy given others’ choices.

Dominant Strategy

The best strategy for a player regardless of what others choose.

Game

A situation in which participants (players) make strategic decisions to maximize their payoffs.

Payoff

The reward or outcome (such as profit) a player receives from a particular decision.

Monopoly outcome (collusive outcome)

The result when firms act together like a monopoly, reducing output and raising price.

Excess capacity

When a firm produces below the output level that minimizes average total cost.

Cartel

A formal organization of firms that agree to coordinate prices and output, acting like a monopoly.