Costs of Production
Economists use this term for costs that do not require a money payment but represent the value of foregone opportunities.
What are implicit costs?
Two characteristics of Perfect Competition
1) many buyers and sellers, 2) all firms selling identical products 3) no or low barriers to entry 4) price takers
Two characteristics of Monopolistic Competition.
1) Lots of buyers and Sellers 2)No or low barriers to entry 3)Differentiated Products (similar but different) 4)Downward sloping demand curve
Two characteristics of Oligopolies.
1) Lots of buyers but few sellers 2)high barriers to entry 3)Uniform or similar Product 4)Firms behave strategically
Two characteristics of Monopolies.
1)only one producer of a good or service 2)unique product 3)high barriers to entry prevent competition 4)a single producer faces the entire downward sloping demand curve 5)"price maker
q * (P - ATC) --> Quantity multiplied by the difference between Price and Average Total Cost
What is the formula for profit?
These firms can sell as much as they want at the current market price, but cannot sell anything at all if they raise the price.
What are firms in perfectly competitive markets?
or What are "price takers?"
This is the relationship between price and marginal revenue for a monopolistic competitor.
What is price is greater than marginal revenue (P > MR)?
This game theory model explains why oligopolists may not cooperate, even when it's in their best interest.
What is the prisoner's dilemma?
Patents, Copyrights and Trademarks
What are government barriers to entry?
ΔTR / Δq -->change in total revenue divided by change in quantity
What is the formula for MR (Marginal Revenue)?
What is the profit maximizing level of output?
The quantity where MC is equal to MR
This key feature distinguishes monopolistic competition from perfect competition, allowing firms to have some price-setting power.
What is product differentiation?
When firms in an oligopoly act independently and pursue only their own self-interest, they typically end up in this type of outcome, where no firm has an incentive to unilaterally change strategy.
What is a Nash equilibrium?
Monopolies are considered inefficient because they create this kind of loss in total welfare.
What is deadweight loss?
Because firms can freely enter and exit the market, long-run profits in perfect competition always equal this value.
What is zero economic profit?
This is what always occurs when economic profits exist in the short run in perfectly competitive markets.
What is the entry of firms?
Firms in monopolistic competition often use this strategy to create perceived differences between products and build brand loyalty.
What is advertising?
A strategy that is the best for a firm, no matter what strategies other firms use?
What is a dominant strategy?
For a monopolist, marginal revenue is always ___ than the price of the product.
What is less?
In the short run, a perfectly competitive firm will continue to operate as long as price covers this average cost.
What is average variable cost?
If a firm is producing where Price (MR) = MC AND = min ATC
What is earning zero economic profits?
In long-run equilibrium, a monopolistically competitive firm produces at an output level where average total cost is not minimized, creating this inefficiency.
What is excess capacity?
This is the term for an agreement among firms in an oligopoly to coordinate actions that will limit output or keep prices high.
What is collusion?
The following; telecommunications networks, oil & gas companies, water, sewer & waste management, electric power supply & grids.
What are examples of natural monopolies?