All Flashcards
How do barriers to entry affect long-run profits?
High barriers to entry allow firms to sustain economic profits in the long run, as new firms cannot easily enter to compete away those profits.
How does product differentiation impact demand?
Product differentiation creates brand loyalty, making the demand curve for a firm's product less elastic.
How does advertising affect monopolistic competition?
Advertising increases demand and differentiates products, but also increases costs, impacting profitability.
How does interdependence affect oligopolies?
Firms must anticipate rivals' actions when making decisions, leading to strategic interactions and potential collusion.
How does price discrimination increase profits?
By charging different prices to different groups, a firm can capture more consumer surplus and increase overall revenue.
How does MR relate to DARP in a monopoly?
Marginal Revenue (MR) is below Demand, Average Revenue, and Price (DARP) curve.
How do patents create monopolies?
Patents give a firm exclusive rights to produce a product, preventing competition and creating a monopoly.
How does zero economic profit arise in monopolistic competition?
Low barriers to entry allow new firms to enter, increasing supply and driving down prices until economic profits are eliminated.
How does a dominant strategy simplify decision-making?
It provides a clear best option regardless of what competitors do, removing uncertainty.
How does collusion affect market outcomes?
Collusion allows firms to act like a monopoly, raising prices and reducing output, harming consumers.
How does a firm maximize profit?
Produce where MR = MC to maximize profit, then raise the price to the demand curve at that quantity.
What is imperfect competition?
Market structure where at least one characteristic of perfect competition is not met, allowing firms some market power.
What are barriers to entry?
Obstacles preventing new firms from entering a market, such as high start-up costs or government regulations.
What is a price maker?
A firm with the power to influence the market price of its product.
What is non-price competition?
Firms differentiating their products through advertising, branding, or quality rather than price.
What is a monopoly?
A market structure with a single firm producing a unique product with no close substitutes.
What is a natural monopoly?
A monopoly that arises due to significant economies of scale, making it more efficient for one firm to serve the entire market.
What is price discrimination?
Charging different prices to different customers for the same product, based on their willingness to pay.
What is monopolistic competition?
A market structure with many firms selling differentiated products with low barriers to entry.
What is an oligopoly?
A market structure dominated by a few large firms, leading to interdependence and strategic interaction.
What is a dominant strategy?
In game theory, a strategy that yields the highest payoff for a player regardless of the other players' strategies.
What is Nash Equilibrium?
A stable state in game theory where no player has an incentive to unilaterally change their strategy, given the strategies of others.
Analyze the monopoly graph.
Monopolies produce where MR=MC, then set price according to the demand curve; results in deadweight loss and productive/allocative inefficiency.
Analyze the price-discriminating monopoly graph.
The firm charges different prices to different customers, resulting in no deadweight loss and no consumer surplus.
Analyze the monopolistic competition graph.
In the long run, the firm's demand curve is tangent to the ATC curve, resulting in zero economic profit.
What does the area between the demand curve and the price represent in a monopoly graph?
Consumer surplus. Monopolies reduce consumer surplus compared to perfect competition.
What does the area between ATC and price represent in a monopoly graph?
Economic profit. Monopolies can sustain economic profit in the long run.
What does the MR=MC intersection represent in a monopoly graph?
Profit-maximizing quantity. The monopolist produces this quantity to maximize its profits.
What does the P=MC represent in a perfectly competitive market?
Allocative efficiency. A perfectly price-discriminating monopolist produces at the allocatively efficient level.
What does the lowest point on the ATC curve represent?
Productive efficiency. Monopolies are not productively efficient.