12. The Firm and Market Structures

Question 1

Cournot assumption

Answer 1

Assumption in which each firm determines its profit-maximizing production level assuming that the other firms’ output will not change.

Question 2

Game theory

Answer 2

The set of tools decision makers use to incorporate responses by rival decision makers into their strategies.

Question 3

Long-run average total cost

Answer 3

The curve describing average total cost when no costs are considered fixed.

Question 4

Minimum efficient scale

Answer 4

The smallest output that a firm can produce such that its long-run average total cost is minimized.

Question 5

Nash equilibrium

Answer 5

When two or more participants in a non-cooperative game have no incentive to deviate from their respective equilibrium strategies given their opponent’s strategies.

Question 6

Short-run average total cost

Answer 6

The curve describing average total cost when some costs are considered fixed.

Question 7

Shutdown point

Answer 7

The point at which average revenue is equal to the firm’s average variable cost.

Question 8

Stackelberg model

Answer 8

A prominent model of strategic decision making in which firms are assumed to make their decisions sequentially.