Pure Competition vs Monopoly

A set of flashcards summarizing important concepts related to pure competition and monopoly, highlighting key terms and definitions essential for understanding market structures.

Price Takers

Individuals or firms that must accept the market price as given because they are too small to influence the market.

Short Run vs Long Run

In the short run, firms can earn profits or incur losses, but in the long run, competition drives profits to zero as firms enter or exit the market.

Marginal Revenue

The additional revenue that will be generated by increasing product sales by one unit.

Constant Cost Industry

An industry in which the costs of production remain constant as industry output changes.

Economic Profit

Profit that exceeds the opportunity cost of resources; when total revenues are greater than total costs.

Allocative Efficiency

Occurs when resources are distributed in such a way that maximizes the net benefit received by society.

Productive Efficiency

Achieved when a firm produces its output at the lowest possible average cost.

Long Run Entry and Exit

In the long run, firms enter the market when there are profits and exit when there are losses.

Natural Monopoly

A market that runs most efficiently when one large firm supplies all of the output.

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.

Price Maker

A firm that has the ability to influence the price of the product it sells.

Market Power

The ability of a firm to raise and maintain the price above the level that would prevail under competition.

Network Effects

The phenomenon whereby increased numbers of people or participants improve the value of a good or service.

Declining Marginal Revenue

A situation in which each additional unit of production produces less additional revenue than the previous unit, typical of monopolistic markets.

Monopoly vs. Pure Competition

Monopolies are characterized by higher prices and lower quantities compared to a competitive market where prices are lower and quantities are higher.

Consumer Benefit Under Competition

In pure competition, consumers benefit from lower prices and a greater variety of goods than in monopolistic markets.