AP Micro Unit 4 Vocabulary

Monopoly

market structure in which an individual firm has sufficient control of an industry or market

Oligopoly

imperfect market structure where the industry is dominated by a few, large firms

Monopolistically Competitive Firm

Imperfect market structure where many, various sized firms compete for market demand shares

Geography

When a firm controls access to the factors of production, it gives them control over the production of a good, making it difficult for new firms to compete

Government

barrier to entry by issuing things like patents and other protections.

Common Use

This barrier of entry is the ability of a firm to use its brand name and reputation to maintain their customer base.

Economies of Scale

ability of a firm to mass-produce their goods at low costs. As firms accumulate capital, they are able to mass-produce their products at the lowest cost possible

Socially Optimal Price and Output

This is located where P = MC. This is also referred to as the allocatively efficient point on a monopoly graph.

Fair Return Price and Output

This is where P = ATC. This is the point on a monopoly graph where total revenue (TR) = total cost (TC), meaning that the monopoly makes a normal profit

Price Discrimination

Specific products are sold to different buyers and each consumer is charged the highest price they are willing and able to pay

Excess Capacity

the difference between a firm's current inefficient level of production and the productively efficient level of output

Colluding Oligopolies

known as cartels, occurs when firms make joint decisions and act as if they were a single firm

Non-colluding oligopolies

practice what we refer to as price leadership, firms compete with each other and follow their own price and quantity and output policy independent of rival firms

Collusion

a secret agreement to cooperate and work together in order to accomplish a common goal. This is similar to when two individuals who are suspected and arrested for a particular crime agree to both remain silent

Interdependent

the various firms in an oligopolistic market are very interdependent on each other. This means that they need each other in order to succeed and maintain their control in the market.

Price Leadership

a model of oligopoly where the dominant firm will initiate a price change in the industry

Cartel

a colluding oligopoly. In this type of oligopoly, a few large firms dominate an industry and use outright collusion to strategically set prices and output

Game Theory

the study of how people behave in strategic situations

Dominant Strategy

the best strategy for one player, regardless of the strategy the other player follows

Dominated Strategy

the strategy that yields a lower payoff, regardless of the strategy the other player follows

Nash Equilibrium

the outcome that results when both players choose the strategy that makes them better off, given the other player's strategy

Producer Surplus

the difference between the price the seller received and how much they were willing to sell it for

Consumer Surplus

the difference between what you are willing to pay and what you actually pay