Imperfect Competition and Monopolies

These flashcards cover key concepts related to imperfect competition and monopolies, relevant for understanding market structures and their economic implications.

Imperfect Competition

A market structure where firms have some control over the price of their products due to factors like market power and product differentiation.

Monopoly

A market structure where a single seller dominates the market, charging higher prices and producing less than in competitive markets due to lack of competition.

Marginal Revenue (MR)

The additional revenue gained from selling one more unit of a product; in monopolies, MR is less than price due to the downward-sloping demand curve.

Price Discrimination

The practice of charging different prices to different consumers for the same good or service based on their willingness to pay.

Allocative Efficiency

A situation where resources are allocated in a way that maximizes total societal welfare; in monopolies, this is not achieved as price is greater than marginal cost.

Productive Efficiency

A condition where goods are produced at the lowest possible cost, achieved when production occurs at minimum average total cost (ATC); monopolies do not attain this.

Deadweight Loss

The loss of economic efficiency that can occur when equilibrium for a good or service is not achieved or is not achievable.

Consumer Surplus (CS)

The difference between what consumers are willing to pay for a good or service and what they actually pay.

Producer Surplus (PS)

The difference between what producers are willing to accept for a good or service versus what they actually receive.

Market Power

The ability of a firm to raise and maintain prices above the level that would prevail under competition, often associated with monopolies.

Nash Equilibrium

A situation in which economic participants interacting with one another each choose their best strategy given the strategies that all the other participants have chosen.

Kinked Demand Curve Model

A model that explains price rigidity in oligopolistic markets; when firms change their prices, competitors will follow suit under certain conditions.

Short-run loss in a monopoly

A situation where a monopoly operates at a loss due to higher costs or lower demand, leading to a decision whether to exit the market or find ways to improve efficiency.

Socially Optimal Price

The price that results in the most efficient allocation of resources, typically occurs when price equals marginal cost (P=MC).

Fair-Return Price

A price that allows a firm to cover its costs and earn a normal profit, usually set at the average total cost (P=ATC).

Long-run Equilibrium in Monopolistic Competition

A situation where firms in monopolistic competition make zero economic profit as new firms enter the market in response to short-term profits.