Chapter 9: Monopolistic Competition and Oligopoly

Flashcards covering key concepts and vocabulary related to monopolistic competition and oligopoly.

Monopolistic Competition

A market structure characterized by a relatively large number of sellers offering differentiated products with easy entry and exit.

Economic Profit

Profits above the normal profit level that can be earned in the short run.

Short-run Loss

A situation in which a firm does not cover its average total costs, occurring when price is below average total cost.

Normal Profit

The level of profit that enables a firm to cover its opportunity costs; the typical profit in a long-run equilibrium.

Productive Inefficiency

A situation in which a firm is not producing at the lowest possible cost, indicated by price being greater than average total cost.

Allocative Inefficiency

A market outcome where the price of a good is not equal to the marginal cost of producing it.

Kinked-Demand Curve

A demand curve that is more elastic for price increases and less elastic for price decreases, reflecting the behavior of firms in an oligopoly.

Collusion

An agreement among firms in the same industry to restrict output and raise prices in an effort to increase their profits.

Oligopoly

A market structure characterized by a few large producers, which may offer either homogeneous or differentiated products, with limited control over prices.

Price Leadership

A market strategy where a dominant firm sets the price and others follow its lead.

Cartel

A formal organization of producers that agree to coordinate their production and pricing decisions.

Advertising

Promotional activity aimed at informing and persuading consumers about products or services, which can enhance competition and technological progress.

Game Theory

A mathematical framework for analyzing strategic interactions among rational decision-makers in oligopoly and other markets.

Limit Pricing

A strategy used by incumbent firms to set prices low enough to deter new entrants into the market.

Demand Elasticity

The responsiveness of the quantity demanded of a good to a change in its price.