LM1: firms and market structures
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22 Terms
Break-even
When total revenue equals total cost (TR = TC)
Shutdown point
The level where TR = TVC
Continue in short run
When TR ≥ TVC
Exit in long run
When firm cannot cover total costs
Economies of Scale
Decrease in average cost as output increases
Diseconomies of Scale
Increase in average cost as output increases
LRAC
Long-run average cost curve
Perfect Competition
Market with many firms selling identical products
Monopolistic Competition
Many firms with differentiated products
Oligopoly
Market dominated by a few interdependent firms
Monopoly
Single seller with no close substitutes
Profit-maximizing rule
MR = MC
Price taker
Firm that cannot influence market price
Price maker
Firm with power to set price
Collusion
Firms cooperate to set higher prices
Cournot Model
Firms compete by choosing quantities
Nash Equilibrium
No firm wants to change strategy given others
Stackelberg Model
Leader firm moves first, followers react
Kinked Demand Curve
Demand curve with different elasticity above and below price
Concentration Ratio (CRn)
Market share of top N firms
HHI
Sum of squared market shares
Market Power
Ability to influence price