ECON 2106: Exam 3
24 Cards in this Set
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Monopolistic Competition
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A market structure in which barriers to entry are low and many firms compete by selling similar, but not identical, products.
*charge a price > than the MC * do not produce at the minimum ATC * NEITHER allocative or productive while perfect competition is both *Benefits consumers by prod…
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Demand curve in monopolistic competition
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Downward sloping demand curve
AR = P Every firm that has the ability to affect the price of the good it sells will have a marginal revenue curve that is BELOW the demand curve.
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Monopoly
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A firm that is the only seller of a good that does not have a close substitute.
* government blocks the entry of more than one firm * one firm has control to key resource *reduces CS *Increase in PS * CAUSES DWL = economic inefficiency
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Price Discrimination
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Charging different prices to different groups of consumers.
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Barriers to entry
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Anything that keeps new firms from entering an industry in which firms are earning economic profits
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Business Strategy
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Actions taken by a firm to achieve a goal, such as maximizing profits.
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Cooperative Equilibrium
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An equilibrium in a game in which players cooperate to increase their mutual payoff.
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Dominant Strategy
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a strategy that is the best for a firm, no matter what strategies other firms use.
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Game Theory
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The study of how people make decisions in situations in which attaining their goals depends on their interactions with others; the profits in which they earn with those decisions
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Nash Equilibrium
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A situation in which each firm chooses the best strategy, given the strategies chosen by other firms.
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Noncooperative Equilibrium
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An equilibrium in a game in which players do not cooperate but pursue their own self-interest. Leaves everyone worse off.
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Oligopoly
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A market structure in which a small number of interdependent firms compete.
*Department stores, cigarettes, beer, aircrafts, college bookstores
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Prisoners' Dilemma
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A game in which pursuing dominant strategies results in noncooperation that leaves EVERYONE worse off. *trying to help yourself, hurts the group.
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Keys to Game Theory
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* Rules determine which actions are allowed * Strategies that players employ to attain their objectives in the game * payoffs that are the results of the interaction among the players' strategies
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Externality
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a benefit or cost that affects someone who is not directly involved in the production or consumption of a good.
*When there is a negative externality in producing a good, too much of the good will be produced at market equilibrium.
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Market Failure
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A situation in which the market fails to produce the efficient level of output.
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Private Benefit
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The benefit received by the consumer of a good
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Private Cost
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The cost borne by the producer of a good
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Private Good
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A good that is both rival and excludable.
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Public Good
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A good that us both nonrivalrous and nonexcludable
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Social Benefit
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The total benefit from consuming a good, including both the private benefit and any external benefit.
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Social cost
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The total cost of producing a good, including both the private cost and any external cost
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Finding Price
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PRICE = Elasticity / (Elasticity - 1) X MC
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MR Eqaution
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MR = ((Price of n) - (n-1)) X (slope or drop in price)
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ECON 2106: Exam 1