Chapter 12 - Managerial Decisions for Firms with Market Power

Market power

ability possessed by all price-setting firms to raise price without losing all sales, which causes the price-setting firm's demand to be downward-sloping

Monopoly

firm that produces a good for which there are no close substitutes in a market that other firms r prevented from entering because of a barrier to entry

Monopolistic competition

market consisting of a large # of firms selling a differentiated product w low barriers to entry

Market definition

identification of the producers n products that compete for consumers in a particular geographic area

Learner index

ratio that measures the proportionate amt by which price exceeds marginal cost: (P-MC)/P

Strong barrier to entry

condition that makes it difficult for new firms to enter a market i/w economic profits r being earned

Switching costs

costs consumers incur when they switch to new/different products/services

Consumer lock-in

high switching costs make previous consumption decisions very costly to change

Network externalities (or network effects)

when the benefit/utility a consumer derives from consuming a good depends positively on the # of other consumers who use the good

Marginal revenue product (MRP)

additional rev attributable to hiring one additional unit of the input, which is also equal to the product of marginal revenue times marginal product; MRP = MR x MP

Total marginal cost curve (MCbaseT)

hor summation of all plants' marginal cost curves, which gives the addition to total cost attributable to increasing total output (QbaseT) by one unit