Monopolistic Competition and Oligopoly

These flashcards summarize key concepts and terms related to monopolistic competition and oligopoly as outlined in the lecture notes.

Monopolistic Competition

A market structure characterized by many medium-sized firms that must innovate and differentiate their products.

Product Differentiation

The process of distinguishing a product from others in the market to attract consumers.

Economic Profit

Profit that exceeds the normal expected return on investment, often attracting new competitors.

Price Maker

A firm that has the ability to set the price of its product due to product differentiation.

Marginal Revenue

The additional revenue that one more unit of a product will bring; it is less than the price in monopolistic competition.

Collusion

An agreement between firms to restrict competition, often resulting in higher prices and reduced output.

Kinked Demand Curve

A demand curve that shows how prices are set in an oligopoly, illustrating the price sensitivity of competing firms.

Nash Equilibrium

A situation in game theory where players choose the best strategy considering the strategies chosen by other players.

Excess Capacity

A situation in which a firm produces below its optimal output level, resulting in inefficiency.

Cartel

A formal agreement among firms in an oligopoly to control prices and limit competition.

Barrier to Entry

Obstacles that prevent new competitors from easily entering an industry or area of business.

Game Theory

A mathematical model analyzing strategic interactions among rational decision-makers.