Chapter 11 Flashcards
(19 cards)
average cost pricing rule
a rule that sets price to cover cost including normal profit, which means setting the price equal to average total cost
barrier to entry
a natural or legal constraint that protects a firm from potential competitors
capture theory
a theory that regulation serves the self-interest of the producer, who captures the regulator and maximizes economic profit
deregulation
the process of removing regulation of prices, quantities, entry, and other aspects of economic activity in a firm or industry
economic rent
any surplus–consumer surplus, producer surplus, or economic profit
legal monopoly
a market in which competition and entry are restricted by the granting of a public franchise, government license, patent, or copyright
marginal cost pricing rule
a rule that sets the price of a good or service equal to the marginal cost of producing it
monopoly
a market structure in which there is one firm, which produces a good or service that has no close substitutes and in which the firm is protected from competition by a barrier preventing the entry of new firms
natural monopoly
a market in which economies of scale enable one firm to supply the entire market at the lowest possible cost
perfect price discrimination
price discrimination that occurs when a firm sells each unit of output for the highest price that anyone is willing to pay for it; the firm extracts the entire consumer surplus
price cap regulation
a rule that specifies the highest price that the firm is permitted to set–a price ceiling
price discrimination
the practice of selling different units of a good or service for different prices
rate of return regulation
a regulation that requires the firm to justify its price by showing that its return on capital doesn’t exceed a specified target rate
regulation
rules administered by a government agency to influence prices, quantities, entry, and other aspects of economic activity in a firm or industry
rent seeking
the lobbying for special treatment by the government to create economic profit or to divert consumer surplus or producer surplus away from others; the pursuit of wealth by capturing economic rent
single-price monopoly
a monopoly that must sell each unit of its output for the same price to all its customers
social interest theory
a theory that the political and regulatory process relentless seeks out inefficiency and introduces regulation that eliminates deadweight loss and allocates resources efficiently
rent-seeking behavior
the act of obtaining special treatment by government to create profit (costly)–lowering profit to zero potentially
rent
any payment to a resource in excess of its opportunity cost
