Micro Test Prep

Perfect Competition

A market structure characterized by many sellers offering identical products, easy entry and exit, and firms being price takers.

Monopoly

A market structure where one firm dominates, offers a unique product, has high barriers to entry, and is a price maker.

Monopolistic Competition

A market structure with many sellers offering differentiated products, easy entry and exit, and limited price-making ability.

Oligopoly

A market structure characterized by a few firms that are interdependent in pricing and have high barriers to entry.

Deadweight Loss (DWL)

The loss of economic efficiency that occurs when the equilibrium outcome is not achievable or not achieved.

Marginal Cost (MC)

The cost of producing one more unit of a good or service.

Average Total Cost (ATC)

The total cost divided by the quantity of output produced.

Price Discrimination (PD)

Charging different prices to different customers for the same product based on their willingness to pay.

Allocative Efficiency

Achieved when the price of a good or service is equal to the marginal cost of producing it, maximizing societal welfare.

Productive Efficiency

Occurs when a firm produces at the lowest average cost.

Long Run Definition

A time period sufficient for all costs to become variable, allowing all inputs to be adjusted.

Interdependent Pricing

A pricing strategy in an oligopoly where firms consider the potential reactions of competitors when setting prices.

Kinked Demand Curve

A demand curve used to describe price rigidity in an oligopoly, where price increases lead to a significant drop in quantity sold, while price decreases prompt little change because rivals will match the price cut.

Lump Sum Tax

A tax that does not change with the level of output, affecting only the average total cost.

Per-Unit Tax

A tax that increases marginal cost and average total cost, affecting the quantity produced and the price.

Shutdown Point

The level of output at which a firm's revenue is less than its variable costs, leading it to cease production in the short run.