AP Microeconomics Unit 4

Imperfect Competition ("**" indicates that the definition may be incorrect for varying reasons, such as being from Google or being based on context clues )

Allocative Efficiency

Allocative Efficiency

achieved when each type of good is produced until the benefit from another unit of the good no longer exceeds the cost of producing another unit (until MB <= MC)

Antitrust Policy

involves efforts by the government to prevent oligopolistic industries from becoming or behaving like monopolies.

Average Total Cost

total cost divided by quantity of output produced; also known as average cost.

Barriers to Entry

something that protects a monopolist (and allows it to persist and earn economic profits) by preventing other firms from entering the industry.

Break-Even Price

the market price at which a price-taking firm earns zero profit; the minimum average total cost of such a firm.

Cartel

a group of producers that agree to restrict output in order to increase prices and their joint profits.

Collusion

when sellers cooperate to raise their joint profits.

Concentration Ratios

measure of the percentage of industry sales accounted for by the “X” largest firms; for example, the four-firm [blank] or the eight-firm [blank].

Dominant Strategy

a player’s best action regardless of the action taken by the other player.

Duopoly

an oligopoly consisting of only two firms.

Excess Capacity

when firms in a monopolistically competitive industry produce less than the output at which average total cost is minimized.

Fair-Return Price

When price is equal to average total cost for a monopoly, enforced by the government usually

Game Theory

the study of behavior in situations of interdependence.

Industry Supply Curve

shows the relationship between the price of a good and the total output of the industry as a whole; also known as market supply curve.

Interdependence

when the outcome (profit) of each firm depends on the actions of the other firms in the market.

Long-Run Industry Supply Curve

shows how the quantity supplied responds to the price once producers have had time to enter or exit the industry.

Marginal Cost

the change in total cost generated by producing an additional unit of output

Marginal Revenue

the change in total revenue generated by an additional unit of output.

Nash Equilibrium

the result when each player in a game chooses the action that maximizes his or her payoff, given the actions of other players; also called noncooperative equilibrium

Noncooperative Behavior

when firms act in their own self-interest, ignoring the effects of their actions on each other’s profits

Payoff

the reward received by a player in a game, such as the profit earned by an oligopolist.

Perfect Price Discrimination

when a monopolist charges each consumer his or her willingness to pay—the maximum that the consumer is willing to pay.

Price Discrimination

when firms charge different prices to different consumers for the same good.

Price Effect

a change in price and how it impacts a firm/market**

Price Leadership

one firm sets its price first, and other firms then follow.

Price Regulation

limits the price that a monopolist is allowed to charge.

Price War

when tacit collusion breaks down and aggressive price competition causes prices to collapse.

Price-Taking

When a consumer/firm has no effect on the market price of the good or service they buy/sell

Prisoners’ Dilemma

a game based on two premises: (1) each player has an incentive to choose an action that benefits itself at the other player’s expense; and (2) when both players follow this incentive, both are worse off than if they had acted cooperatively.

Product Differentiation

an attempt by a firm to convince buyers that its product is different from the products of other firms in the industry.

Productive Efficiency

achieved by an economy if it produces at a point on its production possibilities curve; achieved when firms minimize the average cost of producing their goods

Profit

The value of the difference between total revenue and costs

Public Ownership

(of a monopoly) when a good is supplied by the government, or by a firm owned by the government, instead of by a monopolist.

Quantity Effect

A change in quantity and how it impacts a firm/market**

Short-Run Industry Supply Curve

shows how the quantity supplied by an industry depends on the market price, given a fixed number of firms.

Short-Run Market Equilibrium

when, in a market, quantity supplied equals quantity demanded, given a fixed number of firms.

Shut-Down Price

the price at which a firm ceases production in the short run; equal to minimum average variable cost.

Single-Price Monopolist

monopolist that charges all consumers the same price.

Socially Optimal Price

price where a monopoly is allocatively efficient, enforced by a government usually

Tacit Collusion

when firms limit production and raise prices in a way that raises each other’s profits, even though they have not made any formal agreement.

Tit for Tat

a strategy that involves playing cooperatively at first, then doing whatever the other player did in the previous period.