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34 Cards in this Set
- Front
- Back
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Perfect Competition |
a market with many buyers and sellers, no one person has control of the market |
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Four Characteristics of Perfect Competition |
1. many buyers 2. many sellers 3. free entry/exit 4. homogeneous product 5. "perfect" knowledge 6. buyers/sellers are independent 7. individuals are price takers (price based off supply and demand) |
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Loss minimizing firm |
Price > Average Variable Cost, operate Price < Average Variable Cost, shut down |
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If marginal benefits exceed marginal cost... |
you increase the activity |
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If marginal benefits are less than marginal cost... |
you reduce the activity |
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if marginal benefits = marginal cost... |
profit is maximized, keep activity stationary |
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Break-even price |
the price at which economic profit is zero |
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Shut-down price |
the price where the business firm is indifferent between operating and shutting down |
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sunk cost |
the cost the business firm has already paid or agreed to pay in the future |
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In the long run there is ____ economic profit, and no additional money left over |
zero |
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Two ways someone can enter the market: |
1. somebody drops out 2. there is an increase in demand |
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Monopoly |
a market served by one business firm |
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Characteristics of a Monopoly |
1. potential for many buyers 2. one seller 3. imperfect market knowledge by the consumer |
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Reasons monopolies exist (4) |
1. Patents 2. Franchising/Licensing Schemes 3. Natural Resources 4. Natural Monopoly |
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Patents (monopoly) |
purpose is to encourage you to find more efficient methods of x. Good for 70 yrs, now only 20 yrs, medical good for 7 yrs |
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Franchising/Licensing Schemes (monopoly) |
found at local, state, and gov. levels where government chooses the business firm to provide the product |
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Natural Resources (monopoly) |
business firm owns the land where the material is |
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Natural Monopoly |
where a monopoly will naturally arise if left alone |
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Monopolistically competitive markets characteristics |
reduced prices and higher variety of products increased competition second most competitive (behind perfectly competitive) |
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Oligopolies |
market served by a few business firms |
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Oligopoly Characteristics |
many buyers and few sellers imperfect market knowledge by the buyer tends to be barriers to entry (no free entry and exit) |
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Concentration Ratio |
percent of market output produced by largest business firms |
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Rent-seeking |
process where business firms spend money to persuade governments to enact barriers of entry and pick them as the monopolists |
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barriers of entry |
must have contract in order for products to be sold |
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Gaming tree |
a graphical representation of consequences of different strategies (used in prisoner's and Duopolous dilemmas) |
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Cartel |
two or more businesses working together to coordinate prices and/or quantities. Illegal, violates US anti-trust laws leads to price fixing |
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Dominant strategy |
action that is the best choice no matter what the other person says |
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Duopolis Dilemma |
both business firms would be better off charging the higher price, yet both end up charging the lowest price |
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Nash Equilibrium |
the outcome of the game in which each player is doing the best that they can based on what the other player is doing |
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product differentiation |
a marketing strategy used by business firms to distinguish their products from a similar product |
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Four Primary Ways of Product Differentiation |
1. physical characteristic 2. location 3. service 4. aura/image |
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When a second business firm enters, demand will _____, marginal revenue will _____, price will _____, average cost _______, and profit goes _____. |
drop, drop, drop, increases, down |
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Monopolistic Competition |
a market served by many business firms selling slightly different products |
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Monopolistic Competition Characteristics |
1. many buyers/sellers 2. free entry/exit 3. heterogeneous product 4. imperfect market knowledge 5. buyers/sellers are independent |
