Economics - Monopoly, Perfect Competition, Monopolistic Competition, Oligopoly

Flashcards reviewing key vocabulary and concepts from Economics Lecture on Monopoly, Perfect Competition, Monopolistic Competition, and Oligopoly.

Monopoly

A market that produces a good or service for which no close substitute exists, and in which there is one supplier that is protected from competition by a barrier preventing the entry of new firms.

Barrier to Entry

A constraint that protects a firm from potential competitors.

Natural Monopoly

Barriers to entry create this, and it is a market in which economies of scale enable one firm to supply the entire market at the lowest possible cost.

Ownership Barrier to Entry

Barrier to entry that occurs if one firm owns a significant portion of a key resource.

Legal Barriers to Entry

Barriers to entry that create a legal monopoly in which competition and entry are restricted by the granting of a public franchise, government license, patent or copyright.

Single-Price Monopoly

A firm that must sell each unit of its output for the same price to all its customers.

Price Discrimination

The practice of selling different units of a good or service for different prices.

Economic Rent

Any surplus—consumer surplus, producer surplus, or economic profit.

Rent Seeking

The pursuit of wealth by capturing economic rent.

Regulation

Rules administrated by a government agency to influence prices, quantities, entry, and other aspects of economic activity.

Social Interest Theory

Theory that the political and regulatory process relentlessly seeks out inefficiency and regulates to eliminate deadweight loss.

Capture Theory

Theory that regulation serves the self-interest of the producer, who captures the regulator/government and charge high prices to maximizes economic profit.

Perfect competition

A market in which many firms sell identical products to many buyers; there are no restrictions to entry into the industry; established firms have no advantages over new ones; and sellers and buyers are well informed about prices.

Price taker

A firm that cannot influence the price of a good or service and must “take” the equilibrium market price.

Total cost

The opportunity cost of production, which includes normal profit.

Marginal revenue

The change in total revenue that results from a one-unit increase in the quantity sold.

Shutdown Point

The price and quantity at which a firm is indifferent between producing the profit-maximizing quantity and shutting down; occurs at minimum AVC.

Short-run market supply curve

The quantity supplied by all firms in the market at each price when each firm’s plant and the number of firms remain the same.

Monopolistic competition

A market structure in which a large number of firms compete, each firm produces a differentiated product, firms compete on product quality, price, and marketing; and firms are free to enter and exit the industry.

Zero Economic Profit

Monopolistic competition in the long run results in this, which induces entry as long as firms in the industry earn an economic profit.

Oligopoly

A market structure in which natural or legal barriers prevent the entry of new firms and a small number of firms compete.

Natural duopoly

A market with two firms.

Interdependence

Occurs when a small number of firms mean each firm’s profit depends on every firm’s actions.

Cartel

A group of firms acting together to limit output, raise price, and increase profit.

Game theory

A tool for studying strategic behavior, which is behavior that takes into account the expected behavior of others and the mutual recognition of interdependence.

Payoff matrix

A table that shows the payoffs for every possible action by each player for every possible action by the other player.

Nash equilibrium

An equilibrium where each player makes a rational choice in pursuit of his own best interest, and chooses the action that is best for him, given any action taken by the other player.