ECON 101 Lecture on Entry, Exit, and Long-Run Profitability

This set of flashcards covers key concepts from the lecture regarding market structure, economic profit, entry and exit strategies, barriers to entry, and long-run market dynamics.

Short-Run

The horizon over which production capacity cannot change and the number and type of competitors cannot change.

Long-Run

The horizon over which firms can expand or shrink production, and new firms can enter or exit the market.

Economic Profit

The difference between the benefits of entering a market and the costs associated with it.

Cost-benefit Principle for Entry

It's worth entering a new market if the benefits exceed the costs.

Rational Rule for Entry

Enter a market if you expect to earn a positive economic profit, which occurs when price exceeds average cost.

Switching Costs

An impediment that makes it costly for customers to switch to buying from another business.

Barriers to Entry

Obstacles that make it difficult for new suppliers to enter a market.

Demand-side Strategies

Strategies that create customer lock-in to prevent new entrants from winning over existing customers.

Learning by Doing

Efficiency gains obtained through experience, reducing costs over time.

Entry Deterrence

Strategies to convince potential rivals that entering a market will lead to negative consequences for them.

Short-Run

The horizon over which production capacity cannot change and the number and type of competitors cannot change.

Long-Run

The horizon over which firms can expand or shrink production, and new firms can enter or exit the market.

Economic Profit

The difference between the benefits of entering a market and the costs associated with it.

Cost-benefit Principle for Entry

It's worth entering a new market if the benefits exceed the costs.

Rational Rule for Entry

Enter a market if you expect to earn a positive economic profit, which occurs when price exceeds average cost.

Switching Costs

An impediment that makes it costly for customers to switch to buying from another business.

Barriers to Entry

Obstacles that make it difficult for new suppliers to enter a market.

Demand-side Strategies

Strategies that create customer lock-in to prevent new entrants from winning over existing customers.

Learning by Doing

Efficiency gains obtained through experience, reducing costs over time.

Entry Deterrence

Strategies to convince potential rivals that entering a market will lead to negative consequences for them.

Supply-side Strategies

Strategies that focus on production, distribution, or cost advantages to deter entry or reduce competition.

Network Externalities

When the value of a product or service increases as more people use it, creating a strong barrier to entry for new competitors.

Patents

A government-granted legal right to exclude others from making, using, or selling an invention for a set period, serving as a barrier to entry.

Predatory Pricing

The practice of setting prices very low, sometimes below cost, to drive competitors out of the market or deter new entrants.