AP Micro -- Unit 4

unit test MC monday 11/20 FRQ tuesday 11/21

max profit quantity

MR = MC

allocative efficiency

D = MC/Supply

max revenue

MR = 0

natural monopoly

firm with high fixed costs, very little marginal cost

only efficient at high quantities (e.g. DTE)

price discrimination

a firm charges each buyer exactly what they are willing to pay; no dead weight loss or consumer surplus (e.g. financial aid)

monopolistic competition

many firms, each with its own version of the good

short run economic profit

long run- demand will shift until market is at $0 economic profit; when people don’t want to buy from them, they just go somewhere else

oligopoly

a few giant firms control the market

pretend to be in competition to make a profit

dominant strategy

optimal option when all potential outcomes are considered

monopoly

market with one firm; firm is the market

excess capacity

firm is not producing at efficiency

collusion

firms work together to discover their optimal strategy

oligopoly

a few giant firms control the market

game theory

utilizes the payoff matrix to analyze profits/optimal or dominant strategy

dominant strategy

a firm in an oligopoly will choose this option no matter what the other firm(s) choose to do

subsidy

government monetary support

downward sloping portion of ATC curve

increasing returns to scale

low point of ATC curve

efficient scale

upward sloping portion of ATC curve

decreasing returns to scale

efficient quantity

socially optimal

socially optimal

allocative efficiency