Economics: Market Structures, Monopoly, and Imperfect Competition

Vocabulary flashcards covering perfect competition, monopolies, price discrimination, market concentration metrics, monopolistic competition, and oligopolies from Chapters 8, 9, and 10.

Profit Maximization Rule

The condition of producing at the quantity where marginal revenue equals marginal cost ($MR = MC$).

Short Run

A production timeframe in which at least one factor of production is fixed.

Long Run

A timeframe in which all factors of production are variable, and firms enter the market in response to profit and exit in response to losses.

Normal Profit

An economic profit of zero ($0$), achieved when price equals average total cost ($Price = ATC$).

Loss Minimization

The short-run decision by a firm to continue producing when price is below average total cost to minimize total losses, rather than immediately shutting down.

Short-Run Supply Curve

The portion of a firm's marginal cost curve that lies above the minimum point on its average variable cost curve.

Long-Run Competitive Equilibrium

The market state where $\text{Price} = \text{Marginal Revenue} = \text{Marginal Cost} = \text{Long-Run Average Total Cost at Minimum}$, yielding zero economic profit for competitive firms.

Productive Efficiency

A market condition achieved when goods are supplied at the lowest possible cost.

Allocative Efficiency

A market condition achieved when the mix and choice of goods and services produced matches consumer demand.

Deadweight Loss

The inefficiency created in a market under monopoly conditions, where price is higher and output is lower than under competitive conditions.

Rent-Seeking Behavior

Actions taken by organizations (such as lobbying) with the goal of securing less competition.

X-Inefficiency

A condition occurring when monopolies do not have competitors, leading to rising costs and a loss of productivity.

Price Discrimination

The practice of charging customers different prices for the same or like-same product.

First-Degree Price Discrimination

A pricing strategy where firms capture all consumer surplus by charging each individual customer their exact willingness to pay (e.g., auctions).

Second-Degree Price Discrimination

A pricing strategy where firms charge different prices based on the quantity consumed or purchased.

Third-Degree Price Discrimination

A pricing strategy where firms charge different prices to differentiated consumer groups (e.g., student or senior discounts, ladies' night).

Natural Monopoly

A monopoly that arises when a single company can supply a product to the entire market at a lower price than multiple firms could.

Barriers to Entry

Market obstacles preventing new competitors from entering, including control of a key input of production, economies of scale, and government protections (patents, copyrights).

Antitrust Policy

Government policy aimed at preserving competition and preventing monopolies from using excessive market power or forming in the first place.

Concentration Ratio

A measure of market power that calculates the share of total industry sales accounted for by the largest firms.

Herfindahl-Hirschman Index (HHI)

The principal concentration ratio used to evaluate mergers and judge monopoly power, calculated as the sum of the squares of market shares held by each firm ($\text{HHI} = \text{Share}_1^2 + \text{Share}_2^2 + \dots$).

Long-Run Monopolistic Competition

The long-run state where positive economic profits attract new entrants, shifting demand curves until price equals average total cost ($P = ATC$) and economic profit becomes zero ($\Pi = 0$).

Oligopoly

A market structure characterized by relatively few firms, mutual interdependence, substantial barriers to entry, standardized or differentiated products, and potential for long-run economic profit.

Cartel

A formalized group of firms that formally colludes on price and output and agrees on the distribution of output to restrict supply and generate higher profits.