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ECON 2106: Exam 3
Monopolistic Competition |
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 product differentiation |
Demand curve in monopolistic competition |
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. |
Monopoly |
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 |
Price Discrimination |
Charging different prices to different groups of consumers. |
Barriers to entry |
Anything that keeps new firms from entering an industry in which firms are earning economic profits |
Business Strategy |
Actions taken by a firm to achieve a goal, such as maximizing profits. |
Cooperative Equilibrium |
An equilibrium in a game in which players cooperate to increase their mutual payoff. |
Dominant Strategy |
a strategy that is the best for a firm, no matter what strategies other firms use. |
Game Theory |
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 |
Nash Equilibrium |
A situation in which each firm chooses the best strategy, given the strategies chosen by other firms. |
Noncooperative Equilibrium |
An equilibrium in a game in which players do not cooperate but pursue their own self-interest. Leaves everyone worse off. |
Oligopoly |
A market structure in which a small number of interdependent firms compete.
*Department stores, cigarettes, beer, aircrafts, college bookstores |
Prisoners' Dilemma |
A game in which pursuing dominant strategies results in noncooperation that leaves EVERYONE worse off. *trying to help yourself, hurts the group. |
Keys to Game Theory |
* 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 |
Externality |
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. |
Market Failure |
A situation in which the market fails to produce the efficient level of output. |
Private Benefit |
The benefit received by the consumer of a good |
Private Cost |
The cost borne by the producer of a good |
Private Good |
A good that is both rival and excludable. |
Public Good |
A good that us both nonrivalrous and nonexcludable |
Social Benefit |
The total benefit from consuming a good, including both the private benefit and any external benefit. |
Social cost |
The total cost of producing a good, including both the private cost and any external cost |
Finding Price |
PRICE = Elasticity / (Elasticity - 1) X MC |
MR Eqaution |
MR = ((Price of n) - (n-1)) X (slope or drop in price) |