Monopolistic Competition and Market Structures

These flashcards cover key concepts related to monopolistic competition, market structures, and the implications of pricing strategies for firms.

Monopoly

A market structure characterized by a single seller, selling a unique product in the market.

Natural Monopoly

A type of monopoly that occurs when high fixed costs or significant infrastructure is present, allowing only one supplier to operate efficiently.

Socially Optimal Price

The price at which the quantity demanded equals the quantity supplied, where marginal cost equals price.

Fair Return Price

The price that allows a firm to cover its costs, including a normal profit, equating price to average total cost.

Monopolistic Competition

A market structure that combines characteristics of monopoly and perfect competition, with many firms selling similar but differentiated products.

Product Differentiation

The process of distinguishing a product from others in the market to make it more attractive to particular target consumers.

Elastic Demand

A situation in which the demand for a product is sensitive to price changes, meaning a small change in price results in a large change in the quantity demanded.

Excess Capacity

A situation where a firm produces below its maximum efficient output, leading to inefficiency in production.

Marginal Cost

The cost of producing one additional unit of a good or service.

Average Total Cost

The total cost divided by the number of goods produced, including both fixed and variable costs.