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| A market structure in which the decisions of INDIVIDUAL buyers and sellers have no effect on market price. |
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| A competitive firm that must take the price of its product as given because the firmt cannot influence its price. |
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| Perfectly competitive firm |
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Definition
| A firm that is such a small part of the total INDUSTRY that it cannot affect the price of the product it sells. |
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| The price per unit times the total quanity sold |
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| The change in total revenues resulting from a change in output (and sale) of one unit of the product in question. |
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| Profit-maximizing rate of production |
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Definition
| The rate of production that maximizes total profits, or the differences between total revenues and total costs; also, the rate of production at which marginal revenue equals marginal cost. |
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| Short-run break-even price |
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Definition
| The price at which a firm's total revenues equal its total costs. At the break-even price, the firm is just making a normal rate of return on its capital investment. (It is covering its explicit and implicit costs.) |
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| The price that covers average variable costs. It occurs just below the intersection of the marginal cost curve and the average variable cost-curve. |
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| The locus of points showing the minimum prices at which given quanitites will be forthcoming; also called the MARKET SUPPLY CURVE. |
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| A system of pricing in which the pricing charged is equal to the opportunity cost to society of producing one more unit of the good of service in question. The opportunity cost is the marginal cost to society. |
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| A situation in which an unrestrained market operation leads to either too few or too many resources going to a specific economic activity. |
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| What the characteristics of a perectly competitive market? |
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Definition
| 1) There are a large number of buyers and sellers, 2) firms in the industry produce and sell a homogeneous product, 3) information is equally accessible to both buyers and sellers, and 4) there are insignificant barriers to industry entry or exit. |
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| The single supplier of a good or service for which there is no close substitute. The monopolist therefore constitutes its entire industry. |
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| A monopoly that arises from the peculiar production characteristics in an industry. It usually arises when there are large economies of scale relative to the industry's demand such that one firmcan produce at a lower average cost than can be achieved by the multiple firms. |
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| An association of producers in an industry that agree to set common prices and output quotas to prevent competition. |
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| A firm that must determine the price-output combination that maximizes profit because it faces a downward-sloping demand curve. |
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Definition
| Selling a given product at more than one price, with the price difference being unrelated to differences in marginal cost. |
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| Establishing different prices for similar products to reflect differences in marginal cost in providing those commodities to different groups of buyers. |
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| A market situation in which a large number of firms produce similar but not identitcal products. Entry into industry is relatively easy. |
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| The distinguishing of products by brand name, color, and other minor attributes. Product differentiation occurs in other than perfectly competitive markets in which products are, in theory, omogeneous, such as wheat or corn. |
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| Advertising targeted at specific consumers, typically in the form of postal mailings, telephone calls, or e-mail messages. |
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| Advertising intended to reach as many consumers as possible, typically through television, newspaper, radio, or magazine ads. |
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| Advertising that permits a consumer to follow up directly by searching for more information and placing direct product orders. |
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Definition
| A product with characteristics that enable an individual to evaluate the product's quality in advance of a purchase. |
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Definition
| A product with characteristics that enable an individual to evaluate the product's quality can be established. |
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Definition
| A product with qualities that consumers lack the expertise to assess without assistance. |
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| Informational advertising |
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Definition
| Advertising that emphasizes transmitting knowledge about the features of a product. |
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Definition
| Advertising that is intended to induce a consumer to purchase a particular product and discover a previously unknown taste for the item. |
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| short-run economies of operation |
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Definition
| A distinguishing characteristic of an information product arising from declining short-run average total cost as more units of the product are sold. |
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Definition
| A market situation in which there are very few sellers. Each seller knows that the other sellers will react to its changes in prices and quantities. |
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Definition
| A situation in which one firm's actions with respect to price, quality, advertising, and related changes may be strategically contered by the reactions of one or more other firms in the industry. Such dependence can exist only when there are a limited number of major firms in an industry. |
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| The joining of a firm with another to which it sells an output or from which it buys an input. |
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| The joining of firms that are producing or sellinga similar product |
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| The percentage of all sales contributed by the leading four or leading eight firms in an industry; sometimes called the INDUSTRY CONCERTATION RATIO. |
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| The manner in which one oligopolist reacts to a change in price, output, or quality made by another oligopolist in the industry. |
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Definition
| A way of describing the various possible outcomes in any situation involving two or more interacting individuals when those individuals are aware of the interactive nature of their situation and plan accordingly. The plans made by these individuals are knows as GAME STRATEGIES. |
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Definition
| A game in which the players explicitly cooperate to make themselves better off. As applied to firms, it involves companies colluding in order to make higher than competitive rates of return. |
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| A game in which the players neither negotiate nore cooperate in any way. As applied to firms in an industry, this is the common situation in which there are relatively few firmsand each has some ability to change price. |
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Definition
| A game in which any gains within the group are exactly offset by equal losses by the end of the game. |
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Definition
| A game in which players as a group lose at the end of the game. |
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Definition
| A game in which players as a group are better off at the end of the game. |
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Definition
| Any rule that is used to make a choice, such as "Always picks heads." |
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Definition
| Strategies that always yield the highest benefit. Regardless of what other players do, a dominant strategy will yield the most benefit for the player using it. |
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Definition
| Actions that ignore the possible long-run benefits of cooperation and focus solely on short-run gains. |
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Definition
| A practice in many oligopolistic industries in which the largest firm publishes its price list ahead of its competitors, who then math those announced prices. Also called PARALLEL PRICING. |
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| Entry deterrence strategy |
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Definition
| Any strategy undertaken by firms in an industry, either individually or toegether, with the intent or effect of raising the cost of entry into the industry by a new firm. |
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Definition
| A model that hypothesizes that a grou pof colluding sellers will set the highest common price that they believe they can charge without new firms seeking to enter that industry in search of relatively high profits. |
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Definition
| A situation in which a consumer's willingness to purchase a good or service is influence by how mnay others also buy or have bought the item. |
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Definition
| A tendency for a good or serice to come into favor with additional consumers because other consumers have chosen to buy the item. |
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Definition
| A tendency for a good or service to fall out of favor with more consumers because other consumers have stopped purchasing the item. |
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| Cost-of-serice regulation |
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Definition
| Regulation that allows prices to reflect only the actual cost of production and no monoply profits. |
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Term
| Rate-of-return regulation |
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Definition
| Regulation that seks to keep the rate of return in an industry at a competitive level by not allowing prices that would produce economic profits. |
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Definition
| The potential for asymmetric information to bring about a general decline in product quality in an industry. |
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Definition
| Behavior on the part of a firm that allows it to comply with the letter of the law but violate the spirit significantly lessening the law's effects. |
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| A theory of regulatory behavior that predicts that regulators will eventually be captured by special interests of the industry being regulated. |
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Definition
| The possession of monopoly power in the relevant market and the willful acqusition or maintenance of that power, as distinguished from growth or development as consequenceof a superior proudct, business acumen, or historical accident. |
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Definition
| The percentage of a market that a particular firm supplies; used as the primary measure of monoply power. |
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Definition
| Offering two or more products for sale as a set |
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Term
| Price elasticity of demand |
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Definition
| The responsiveness of the quanitity demanded of a commodity to changes in its price; defined as the percentage change in quantity demanded divided by the percentage change in price. |
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Definition
| A demand relationship in which a given percentage change in price will result in a larger percentage change in quantity demanded. Total expenditures and price changes are inversely related in the elastic region of the demand curve. |
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Definition
| A demand relationship in which the quanitity demanded changes exactly in proportion to the change in price. Total expenditures are invariant to price changes in theunit-elastic region of the demand curve. |
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Definition
| A demand reationship in which a given percentage change in price will result in a less than proportionate percentage change in the quanitity demanded. Total expenditures and price are directly related in the inelastic region of the demand curve. |
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