Unit 4 - Imperfect Competition Guide (copy)

Imperfect Competition

Market structure where firms have some control over prices due to less competition.

Barriers to Entry

Obstacles that prevent new firms from entering a market, such as high startup costs and legal restrictions.

Monopoly

Market structure with only one firm producing a product with no close substitutes.

Demand Curve

A graphical representation showing the relationship between price and quantity demanded, typically downward sloping in monopolies.

MR = MC

The condition for profit maximization where marginal revenue equals marginal cost.

Allocative Efficiency

A situation where resources are distributed in a way that maximizes total welfare, achieved when P = MC.

Productive Inefficiency

Occurs when a firm does not produce at the minimum average total cost (ATC).

Natural Monopoly

A market structure characterized by high fixed costs and economies of scale, leading to a downward sloping ATC curve.

Price Discrimination

Charging different prices for the same good based on consumers' willingness to pay.

Market Power

The ability of a firm to influence the price of a product or service in the market.

Imperfect Price Discrimination

Charging different prices based on varying willingness to pay among consumers.

Perfect Price Discrimination

Charging each consumer the maximum they are willing to pay, resulting in no deadweight loss.

Monopolistic Competition

A market structure with many firms offering similar but not identical products.

Short Run Profits

Temporary profits that attract new firms into the market, affecting demand.

Long Run Normal Profit

The situation where firms earn just enough to cover their costs in the long run.

Oligopoly

A market structure with a small number of firms that are interdependent in their pricing and output decisions.

Cartels

Groups of firms that collude to control prices and output in a market.

Collusion

Cooperative behavior among firms to maximize profits, often seen in oligopolies.

Game Theory

A mathematical framework for analyzing strategic interactions among rational decision-makers.

Payoff Matrix

A table that shows the payoffs for each player based on their chosen strategies.

Dominant Strategy

A strategy that yields a higher payoff regardless of the opponent's choice.

Nash Equilibrium

A situation in which neither player can improve their payoff by changing their strategy, given the strategy of the other player.