Untitled Flashcards Set

1. In an imperfectly competitive market, firms are considered price makers because

They have some control over the price of their products due to differentiated products or market power.

2. Which of the following is NOT a characteristic of a monopoly?

Free entry and exit (monopolies exist due to barriers preventing other firms from entering).

3. Allocative efficiency occurs when

The price of a good equals its marginal cost (P = MC), ensuring resources are optimally allocated.

4. Natural monopolies are different from other monopolies because

They arise due to high fixed costs and economies of scale, making one firm more efficient than multiple competitors.

5. A firm can successfully implement price discrimination when

It has market power, can segment the market, and prevent resale between segments.

6. The revenue-maximizing quantity occurs when

Marginal revenue (MR) equals zero.

7. Deadweight loss in monopolies occurs because

Monopolists produce less than the socially optimal quantity, leading to inefficiency.

8. Consumer surplus represents

The difference between what consumers are willing to pay and what they actually pay.

9. A key barrier to entry in imperfect competition might be

High startup costs, legal restrictions, or control over key resources.

10. The demand curve for a monopolist is

Downward-sloping because they face the entire market demand.

11. Productive efficiency occurs when

Goods are produced at the lowest possible cost (minimum average total cost, ATC).

12. Price discrimination requires

Market power, the ability to segment markets, and prevention of resale.

13. Diseconomies of scale occur when

Average costs increase as production expands due to inefficiencies.

14. The socially optimal quantity occurs where

Marginal cost equals marginal benefit (or price equals marginal cost, P = MC).

15. What is the key characteristic in perfect price discrimination?

Each consumer is charged their maximum willingness to pay, capturing all consumer surplus.

16. In monopolistic competition, what is excess capacity?

Firms produce below the level where average total costs are minimized.

17. What defines an oligopoly market structure?

A few large firms dominate the market, with interdependent decision-making.

18. What is tacit collusion in an oligopoly?

Firms implicitly coordinate prices or output without formal agreements.

19. What attracts competition in monopolistically competitive markets?

Short-run economic profits signal new entrants to the market.

20. In oligopoly markets, why do prices tend to be inflexible?

Due to the kinked demand curve and fear of price wars.

21. What is a Nash Equilibrium?

A situation where no player can improve their payoff by unilaterally changing their strategy.

22. What percentage of market control defines an oligopoly?

Typically, when a few firms control a significant portion, often quantified as the four-firm concentration ratio.

23. What is a dominant strategy in game theory?

A strategy that provides a better outcome for a player regardless of the opponent's choice.

24. How can the government influence game theory outcomes?

Through regulation, antitrust laws, or setting price floors/ceilings.

25. What is overt collusion?

Explicit agreements between firms to fix prices, limit output, or divide markets.