Econ 201 Pretest 3 (Chapters 10, 12, 13) Review

Vocabulary practice flashcards covering market structures, profit maximization rules, and strategic behavior from Economics 201 Chapters 10, 12, and 13.

Perfect Competition (Characteristics)

A market structure where firms and consumers have perfect information, sellers can enter easily, and all goods sold are identical.

Perfectly Competitive Firm (Price Influence)

A firm that has no influence over price because its output is insignificant relative to the market as a whole.

Short-run Shutdown Rule

The rule stating a perfectly competitive firm should shut down immediately if $TR < SRVC$.

Short-run Supply Curve (Perfectly Competitive Firm)

The firm's $MC$ curve above the minimum point on the $AVC$ curve.

Zero Economic Profit

A state that includes opportunity costs in its calculation, unlike accounting profit.

Entry of Firms (Impact)

The process in a perfectly competitive industry that causes the supply curve to move farther toward the right.

Long-run Equilibrium (Perfect Competition)

A state where $P = MC = AC$ and the firm produces at the lowest point on its long-run average cost curve.

Tax on Polluting Firms

An intervention that shifts the $LRAC$ curve upward.

Pure Monopoly

A market structure defined by having only one supplier, no close substitutes, and extremely unlikely entry of competitors.

Control of Scarce Resources

A source of monopoly power exemplified by the South African diamond production industry.

Price Discrimination

Engaging in charging different prices to different buyers, which allows firms to earn more profit than those that do not discriminate.

Monopolistic Competition (Demand Curve)

A downward-sloping curve that exists because there are close but not perfect substitutes for the product.

Monopolistic Competition (Long-run Equilibrium)

A state where firms earn zero economic profit, similar to perfect competitors.

Oligopoly (Decision Making)

A market structure where the difficulty in analysis arises from the interdependent nature of decisions and the need to take rivals' reactions into account.

Cartel

A formal organization of producers that agree to coordinate prices and production, such as the Organization of Petroleum Exporting Countries (OPEC).

Price Leadership

A practice where one firm raises prices and others in the industry follow, seen historically in the cigarette industry with R. J. Reynolds or Phillip Morris.

Sales-maximizing Firm

A firm that produces the output level at which $MR = 0$.

Kinked Demand Curve Model

An oligopoly model suggesting a firm faces more elastic demand if she raises her price than if she lowers her price.

Payoff Matrix

A fundamental tool used in game theory to display the outcomes of different strategies.

Maximin Criterion

A strategy where one seeks the maximum of the minimum payoffs to the various available strategies.

Contestable Market

A market characterized by free entry and exit.