Chapter 8 - Monopoly, oligopoly & monopolistic competition

Monopolistic competition

________: industry structure in which a large number of firms produce slightly differentiated products that are reasonably close substitutes for one another.

Market power

________: firm's ability to raise the price of a good without losing all its sales.

Oligopoly

________: industry structure in which a small number of large firms produce products that are either close or perfect substitutes.

Pure monopoly

________: the only supplier of a unique product with no close substitutes.

level of output

A monopolist will earn an economic profit only if price exceeds average total cost at the profit- maximizing ________.

Price setter

________: firm with at least some latitude to set its own price.

Natural monopoly

________: monopoly that results from economies of scale (increasing returns to scale)

Price setter

firm with at least some latitude to set its own price

Pure monopoly

the only supplier of a unique product with no close substitutes

Monopolistic competition

industry structure in which a large number of firms produce slightly differentiated products that are reasonably close substitutes for one another

Oligopoly

industry structure in which a small number of large firms produce products that are either close or perfect substitutes

Market power

firm's ability to raise the price of a good without losing all its sales

Constant returns to scale

production process is said to have constant returns to scale if, when all inputs are changed by a given proportion, output changes by the same proportion

Increasing returns to scale = economies of scale

production process is said to have increasing returns to scale if, when all inputs are changed by a given proportion, output changes by more than that proportion

Natural monopoly

monopoly that results from economies of scale (increasing returns to scale)

Marginal revenue

change in a firm's total revenue that results from a one-unit change in output

Price discrimination

practice of charging different buyers different prices for essentially the same good/service

Perfectly discriminating monopolist

firm that charges each buyer exactly his/her reservation price

Hurdle method of price discrimination

practice by which a seller offers a discount to all buyers who overcome some obstacle

Perfect hurdle

threshold that completely segregates buyers whose reservation prices lie above it from others whose reservation prices lie below it, imposing no cost on those who jump the hurdle