Market Power and Monopoly

These flashcards cover key concepts related to market power and monopolies in microeconomics, providing definitions and explanations of important terms.

Market Power

The ability of a firm to influence the market price of its product.

Monopoly

A market served by only one firm.

Barriers to Entry

Factors that prevent entry into the market, allowing firms to maintain positive producer surplus indefinitely.

Natural Monopoly

A situation where a single firm can produce the entire industry output more efficiently due to extreme scale economies.

Switching Costs

Costs that consumers incur when changing from one supplier to another.

Product Differentiation

Imperfect substitutability across varieties of a product, preventing consumers from treating products as perfect substitutes.

Absolute Cost Advantage

A firm's ability to keep its costs lower than those of competitors by controlling key inputs.

Government Regulation

Management that limits market entry to reduce market power, through means like patents and licensing.

Marginal Revenue

The change in total revenue associated with an increase in output for a firm facing a downward-sloping demand curve.

Lerner Index

A measure of a firm's markup, indicating the degree of market power the firm enjoys.