Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
32 Cards in this Set
- Front
- Back
|
Game Theory
|
Theory designed to understand strategic choices
OR: How people/orgs behave when they expect their axns to influence the behavior of others. |
|
|
Nash Equilibrium
|
Game equilibrium when both players execute their dominant strategies (neither player would change his strategy if offered chance at end of game)
|
|
|
Dominant Strategy
|
A player has a dominant strategy whenever the player is better off choosing that strategy, regardless of what the other player does
|
|
|
Credible Threats
|
A threat is credible if a player has an incentive to carry out that threat, if put in a position to do so.
|
|
|
Quantity Effect
|
The additional revenue from selling one more unit
Qe= P new x (Q new - Q old) |
|
|
Price Effect
|
The lost revenue for lowering the price charged for ALL units
Pe= (P new-P old)xQ old This effect dominates at high quantities of output |
|
|
What does a monopolist do to the quantity?
|
A monopolist reduces the quantity supplied to Qm, moving up the demand curve to Pm
|
|
|
Market Power
|
The ability of a monopolist to raise its price above the competitive level by reducing output
|
|
|
Natural monopolies occur when?
|
When Average Total Cost (ATC) is declining over the entire relevant output range.
|
|
|
Regular monopolies occur when?
|
-A company has control of a scarce resource
-A company has technological superiority (usually happens in long-run) -Government-created barriers become involved (patents) |
|
|
Why is MR<P for a monopolist?
|
An increase in production has to opposing effects on marginal revenue for a monopolist.
Price effect and Quantity Effect MR=QE+PE |
|
|
What determines P for a monopolist?
|
The demand curve at Qm determines P
|
|
|
How does a monopolist determine the profit maximizing quantity?
|
By setting MR=MC
|
|
|
How do you find the monopolist's profits?
|
Monopolist's profits are equal to
(P-ATC) x Q |
|
|
Price Discrimination
|
Selling the same product at several different prices
Result of buyers' differences in willingness to pay not differences in production cost |
|
|
To be able to price discriminate a monopoly must...
|
Identify and separate different kinds of buyers
Sell a product that cannot be resold |
|
|
Two ways monopolists can discriminate in pricing:
|
Among units of a good
Among groups of buyers |
|
|
What is the goal of price discrimination?
|
To convert consumer surplus into profit
|
|
|
Under perfect price discrimination the market demand curve becomes _______
|
Under perfect price discrimination the market demand curve becomes the marginal revenue curve
|
|
|
Is perfect price discrimination inefficient?
|
No, perfect price discrimination eliminates the deadweight loss from having a monopoly.
|
|
|
In perfect price discrimination, what is the Price and Marginal Cost relationship?
|
P=MC
|
|
|
What happens to the output under perfect price discrimination?
|
Output is exactly equal to what it would be in perfect competition.
|
|
|
Collusive Agreement
|
An agreement between two or more producers to restrict output, raise the price, increase profits
|
|
|
Monopolistic Competition: Definition
|
Consumers view the products of each producer close, but not perfect substitutes for the products of competitors
|
|
|
Monopolistic Competition: Characteristics
|
Many firms
Free entry and exit Differentiated products |
|
|
Firms in monopolistic competition face what kind of demand curve?
|
-A downward sloping demand curve
-It can determine within limits the price of its demand curve |
|
|
Long Run:
If existing firms are earning profits, then what will happen? |
New firms will enter the industry, which will shift the demand and MR curves to the left
This continues until P=ATC |
|
|
Short Run:
If the ATC curve is below the demand curve at any point, then..... |
The firm is profitable
|
|
|
Short Run:
If the ATC curve is always above the demand curve then.... |
The firm is never making profits
|
|
|
Long Run:
If existing firms are losing money, then what will happen? |
Firms will exit the market, which will shift the demand and MR curves to the right
This continues until P=ATC |
|
|
What is inefficiency due to in monopolistically competitive markets?
|
Mutually beneficial transactions that do not occur.
|
|
|
Prisoner's Dilemma
|
A situation in which the noncooperative pursuit of self-interest by two parties makes them both worse off.
|
