Exam 3 Flashcards
(23 cards)
Competition
a rivalry among firms, involves one firm trying to take away market share
perfectly competitive market
a market in which economic forces operate unimpeded
- both buyers and sellers are price takers
- number of firms is large
- no barriers to entry
- firm’s products are identical
- selling firms are profit-maximizing entrepreneurial firms
price taker
firm or individual who takes the price determined by market supply and demand as given, no control of price. price is set by market
barriers to entry
social, political, or economic impediments that prevent firms from entering a market
marginal revenue
change in total revenue associated with a change in quantity
marginal cost
the change in total cost associated with a change in quantity
when does a firm maximize profit?
when MC=MR
profit-maximizing condition
MC=MR=P
-firms must produce where P=MC
shutdown point
the point below which the firm will be better off if it shuts down than it will if it stays in business
market supply curve
horizontal sum of all the firms’ marginal cost curves, taking account of any changes in input prices that might occur
price-discriminate
charge different prices to different individuals
three important barriers
natural ability- one firm is better than everyone else economies of scale- can produce at a lower cost
government restrictions-
monopolistic competition
a market structure in which there are many firms selling differentiated products and few barriers to entry
many sellers
differentiated products
multiple dimensions of competition
easy entry of new firms in the long run
oligopoly
a market structure in which there are only a few firms and firms explicitly take other firms’ likely response into account
strategic decision-making
taking explicit account of a rival’s expected response to a decision you are making
cartel
a combination of firms that acts as if it were a single firm
cartel model of oligopoly
a model that assumes that oligopolies act as if they were monopolists that have assigned output quotas to individual member firms of the oligopoly so that total output is consistent with joint profit maximization
implicit collusion
multiple firms make the same pricing decisions even though they have not explicitly consulted with one another
price leader
one firm in the industry sets a price and the others follow
contestable market model
model of oligopoly in which barriers to entry and barriers to exit, not the structure of the market, determine a firm’s price and output decision
price war in oligopolies
to hurt competitors out of passion and anger
concentration ratio
the value of sales by the top firms of an industry stated as a percentage of total industry sales
antitrust policy
the government’s policy toward the competitive process
