Untitled Flashcards Set

Price makers

Firms that have some control over the price of their products due to differentiated products or market power.

Characteristic NOT of a monopoly

Free entry and exit.

Allocative efficiency occurs when

The price of a good equals its marginal cost (P = MC).

Natural monopolies

They arise due to high fixed costs and economies of scale, making one firm more efficient than multiple competitors.

Price discrimination implementation

A firm can successfully implement price discrimination when it has market power, can segment the market, and prevent resale between segments.

Revenue-maximizing quantity

Occurs when marginal revenue (MR) equals zero.

Deadweight loss in monopolies

Occurs because monopolists produce less than the socially optimal quantity, leading to inefficiency.

Consumer surplus represents

The difference between what consumers are willing to pay and what they actually pay.

Barrier to entry in imperfect competition

High startup costs, legal restrictions, or control over key resources.

Demand curve for a monopolist

Downward-sloping because they face the entire market demand.

Productive efficiency occurs when

Goods are produced at the lowest possible cost (minimum average total cost, ATC).

Price discrimination requirements

Market power, the ability to segment markets, and prevention of resale.

Diseconomies of scale

Occur when average costs increase as production expands due to inefficiencies.

Socially optimal quantity

Occurs where marginal cost equals marginal benefit (or price equals marginal cost, P = MC).

Perfect price discrimination characteristic

Each consumer is charged their maximum willingness to pay, capturing all consumer surplus.

Excess capacity in monopolistic competition

Firms produce below the level where average total costs are minimized.

Oligopoly market structure

Defined by a few large firms dominating the market, with interdependent decision-making.

Tacit collusion

Firms implicitly coordinate prices or output without formal agreements.

Attraction of competition in monopolistically competitive markets

Short-run economic profits signal new entrants to the market.

Price inflexibility in oligopoly markets

Due to the kinked demand curve and fear of price wars.

Nash Equilibrium

A situation where no player can improve their payoff by unilaterally changing their strategy.

Oligopoly percentage of market control

Typically, when a few firms control a significant portion, often quantified as the four-firm concentration ratio.

Dominant strategy in game theory

A strategy that provides a better outcome for a player regardless of the opponent's choice.

Government influence in game theory outcomes

Through regulation, antitrust laws, or setting price floors/ceilings.

Overt collusion

Explicit agreements between firms to fix prices, limit output, or divide markets.