Term
| "Reasons for Exit and Entry" in Long Run Competative Equilibrium |
|
Definition
1. Change in demand
2. Change in costs |
|
|
Term
| "Necessary Conditions" for Long Run Competative Equilibrium |
|
Definition
1. The market clears (Qs = Qd)
2. Profit = 0; normal; P = ATC |
|
|
Term
| CONSEQUENCES: Decrease in demand |
|
Definition
1. D decreases
2. P and Q decrease
3. d = MR
4. q* decreases,; pi < 0
5. Exit ( S decreases)
6. Q falls and P returns to normal
7. d = MR returns to original
8. q* returns to original; pi = 0 |
|
|
Term
| CONSEQUENCES: Increase in costs |
|
Definition
1. MC and ATC increase
2. q* decreases; pi < 0
3. Exit (S decreases)
4. Q falls and P rises
5. d = MR increases
6. q* increases; pi = 0 |
|
|
Term
| CONSEQUENCES: Decrease in costs |
|
Definition
1. MC and ATC decrease
2. q* increases; pi > 0
3. Entry (S increases)
4. Q rises and P falls
5. d = MR decreases
6. q* decreases; pi = 0 |
|
|
Term
| CONSEQUENCES: Increase in demand |
|
Definition
1. D increases
2. P and Q increases
3. d = MR increases
4. q* increases; pi > 0
5. Entry (S increases)
6. Q rises and P returns to original
7. d= MR returns to original
8. q* returns to original; pi = 0 |
|
|
Term
|
Definition
1. P = min ATC
2. Opportunity cost of resources is minimized
3. Output of all other goods is maximized |
|
|
Term
|
Definition
1. P = MC
2. Everyone willing to pay at least MC will get the good
3. Social welfare is maximized |
|
|
Term
|
Definition
| a single seller in an industry |
|
|
Term
|
Definition
1. Single seller
2. No close Substitutes
3. High barriers to entry |
|
|
Term
| MONOPOLY: Implication of "single seller" |
|
Definition
|
|
Term
| MONOPOLY: Implication of "no close substitutes" |
|
Definition
|
|
Term
| MONOPOLY: Implication of "high barriers to entry" |
|
Definition
|
|
Term
|
Definition
| producer that finds the profit-maximizing P/Q combination |
|
|
Term
| MONOPOLY: Types of Barriers to Entry |
|
Definition
1. Economies of scale (the more you produce the cheaper per unit)
2. Government-created barriers (patents and licenses)
3. Control of an Essential Resource (NFL, DeBeers diamonds) |
|
|
Term
| MONOPOLY: Profit Maximization |
|
Definition
MR does NOT = D
-->when D is downward sloping, the producer must lower the price in order to increase output. Thus, MR < P |
|
|
Term
| MONOPOLY: Profit maximizatuion relationship betwen MR and P |
|
Definition
| MR and P are the same initially, then MR falls twice as fast |
|
|
Term
| MONOPOLY: MR and D comparison equations |
|
Definition
|
|
Term
| MONOPOLY: SR Profit maximization graph analysis |
|
Definition
Find Q* where MR = MC --> continue to Demand curve to find P*
--> DUE to high barriers to entry: SR pi = LR pi |
|
|
Term
|
Definition
| the practice of charging different groups of buyers different prices based on differences in Ed |
|
|
Term
| 3 conditions necessary for Price Discrimination |
|
Definition
1. Same degree of market/monopoly power
2. Two or more groups of buyers with different elasticities
3. Prevention of resale |
|
|
Term
| Price Discrimination: ELASTIC (shallow slope) |
|
Definition
1. lower price
2. more options
3. lower opportunity cost |
|
|
Term
| Price Discrimination: INELASTIC(steep slope) |
|
Definition
1. higher price
2. fewer options
3. higher opportunity cost |
|
|
Term
|
Definition
1. contrived scarcity
2. deadweight loss |
|
|
Term
|
Definition
-case against monopoly-
making goods SEEM more scarce than they are.
Qm < Qpc ; Pm > Ppc |
|
|
Term
|
Definition
| 1. Technological advance- IF monopoly spends pi on reearch and development, then monopoly may create faster growth over time |
|
|
Term
| Monopolistic Competition Characteristics |
|
Definition
1. Many small buyers and sellers
2. No barriers to entry
3. Differentiated products (i.e coke and pepsi) |
|
|
Term
| Monopolistic Competition Characteristics |
|
Definition
1. Many small buyers and sellers
2. No barriers to entry
3. Differentiated products (i.e coke and pepsi) |
|
|
Term
| MON. COMP. Implications of "many small buyers and sellers" |
|
Definition
| no individual can affect Pe or Qe |
|
|
Term
| MON. COMP. Implications of "no barriers to entry' |
|
Definition
|
|
Term
| MON. COMP. Implications of "differentiated products" |
|
Definition
|
|
Term
| MON. COMP. SR profit Maximization |
|
Definition
| negative profit is possible in the short run |
|
|
Term
| MON. COMP. LR profit maximization |
|
Definition
When pi > 0 in the SR, then in the LR:
1. Firms enter
2. D and MR fall
3. P* and Q* fall
4. pi = 0 |
|
|
Term
|
Definition
| a seller's activites in communicating its message about its product to potential buyers. |
|
|
Term
|
Definition
1. increase D
2. decrease Ed |
|
|
Term
| Positive effects of advertising |
|
Definition
1. decreases search and information costs
2. facilitates the introduction of new products |
|
|
Term
| Conditions for advertising |
|
Definition
many sellers = small demand
close subs = highly elastic demand |
|
|
Term
| Potential negative effects of advertising |
|
Definition
1. May be persuasive rather than informative, designed to alter preferences
2. May establish brand-name loyalty; increasing monopoly power
3. Competing ads may cancel each other out, resulting in a waste of resources that does not alter demand |
|
|
Term
| Cases AGAINST Monopolistic Competition |
|
Definition
1. P > MC - no allocative efficiency
2. Excess capacity- Q* is below output where ATC is minimized |
|
|
Term
| Case FOR Monopolistic Competition |
|
Definition
| 1. Expanding consumer options through product variety adds the value by more fully matching consumer tastes |
|
|
Term
| Oligopoly Characteristics |
|
Definition
1. Few, mutually interdependent firms
2. high barriers to entry
3. Imperfect information |
|
|
Term
| OLIG. Implications of "few, mutually interdependent firms" |
|
Definition
| actions of 1 firm will affect the market |
|
|
Term
| OLIG. Implications of "high barriers to entry" |
|
Definition
|
|
Term
| OLIG. Implications of "imperfect information" |
|
Definition
| strategic cheating is possible |
|
|
Term
|
Definition
| cooperation among firms to raise each others' profit |
|
|
Term
|
Definition
| agreement among firms to restrict output to achieve monopoly power |
|
|
Term
|
Definition
1. Cartels are illegal in the U.S.
2. When all the members follow the rules, firms split monopoly profit
3. Cartels can increase profits to all firms regardless of product type |
|
|
Term
|
Definition
| 2 players make 1 decision independently and at the same time; move of the other player is unknown |
|
|
Term
|
Definition
| game in which the pay offs are such that the choice set that maximizes total welfare fails to maximize personal welfare |
|
|
Term
|
Definition
|
|
Term
|
Definition
|
|
Term
| Maximum INDIVIDUAL welfare |
|
Definition
| determine best choice in each scenario |
|
|
Term
| Factors that BREAKDOWN collusion |
|
Definition
1. Large # of sellers
2. differentiated products
3. differences in cost
4. antitrust policy |
|
|
