Micrecon-imperfect markets

monopolist

the only producer of a good that has no close substitutes.

monopolistic competition

a market structure in which there are many competing firms in an industry, each firm sells a differentiated product, and there is free entry into and exit from the industry in the long run.

oligopoly

an industry with only a small number of firms.

perfectly competitive industry

an industry in which firms are price-takers, identical products, no barriers to entry

price-taking consumer

a consumer whose actions have no effect on the market price of the good or service he or she buys.

price-taking firm

a firm whose actions have no effect on the market price of the good or service it sells.

perfect price discrimination

when a monopolist charges each consumer his or her willingness to pay--the maximum that the consumer is willing to pay.

price discrimination

when sellers charge different prices to different consumers for the same good.

cartel

a group of producers that agree to restrict output in order to increase prices and their joint profits.

collusion

when sellers cooperate to raise their joint profits.

duopoly

an oligopoly consisting of only two firms.

interdependence

when the outcome (profit) of each firm depends on the actions of the other firms in the market.

noncooperative behavior

when firms act in their own self-interest, ignoring the effects of their actions on each other's profits.

dominant strategy

a player's best action regardless of the action taken by the other player.

game theory

the study of behavior in situations of interdependence.

Nash equilibrium (noncooperative equilibrium)

when there is no incentive for a participant to change its strategy

prisoners' dilemma

each player has an incentive to choose an action that benefits him- or herself at the other player's expense but when both players act in this way, both are worse off than if they had acted cooperatively.

product differentiation

an attempt by a firm to convince buyers that its product is different from the products of other firms in the industry.

strategic behavior

when a firm attempts to influence the future behavior of other firms.

tacit collusion

when firms limit production and raise prices in a way that raises each other's profits, even though they have not made any formal agreement.

Price effect

a firm must reduce price to sell the remaining units

Quantity effect

marginal revenue; how the revenue changes given a price change

Allocatively Efficient

when P \= MC

Productively efficient

MC\=ATC, when a firm is producing at the lowest point of the ATC