55 Cards in this Set
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Marginal revenue formula
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MR=P-|*P/*Q|•Q
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Perfect price discrimination
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Charging the price each consumer is willing to pay for every unit
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If you perfectly discriminate marginal revenue will line up with the
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Demand curve
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2 part pricing
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There is first a fixed amount and then an amount per unit.
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P=10-Q
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Spring water formula, insert 2 for price get 8 for q
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Consumer surplus
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Area of triangle from top to price I think
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natural monopoly
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(increasing returns to scale)
a monopoly that results from economies of scale
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Increasing Returns to Scale (IRTS)
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When a firm increases its inputs by some percentage, output increases by an even larger percentage.
Average cost decreases as output increases
Left section of Long Run Average Cost graph
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A firm's power to raise its price without losing its entire market stems from exclusive control of
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important inputs, patents and copyrights, government licenses, economies of scale, or network economies. Most important of these are economies of scale and network economies.
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In economies of scale if there is a small fixed cost, if two firms have the same fixed cost and same marginal cost, but firm A produces 20 percent less than firm B, there _________ be a significant cost disidvantage in regards to average total cost per game.
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will not
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In an economy of scale, if two firms have a large fixed cost that is the same, and have the same marginal cost, then they ______ suffer a significant cost disadvantage in regards to average total cost.
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will
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Responses to natural monopolies
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have the state run it/finance it, regulate it and subsidize it, force them to charge a price below monopoly price but above marginal cost
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Products with large fixed cost marginal cost is often ________ than average total cost. As average total cost ________ output grows.
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lower, declines
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credible threat
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a threat to take an action that is in the threatener's interest to carry out
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credible promise
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a promise to take an action that is in the promiser's interest to keep
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decision tree or game tree
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a diagram that describes the possible moves in a game in sequence and lists the payoffs that correspond to each possible combination of moves
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Prisoner's Dilemma
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A game in which each player has a dominant strategy, and when each plays it, the resulting payoffs are smaller than if each had played a dominated strategy
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repeated prisoner's dilemma
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a standard prisoner's dilemma that confronts the same players repeatedly
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Tit-for-Tat
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a strategy in repeated games when a player in one round of the game mimics the other players behavior in the previous round; an optimal strategy for getting the other player to cooperate
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Nash Equilibrium
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The outcome of a game that occurs when player A takes the best possible action given the action of player B and player B takes the best possible action given the action of player A.
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payoff matrix
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a table that describes the payoffs in a game for each possible combination of strategies
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dominant strategy
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on that yields a higher payoff no matter what the other players in a game choose
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dominated strategy
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any other strategy available to a player who has a dominant strategy
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basic elements of a game
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the players, the strategies available to each player, and the payoffs each player receives for each possible combination of strategies
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nash equilibrium in coordination game
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each player chooses the same strategy. neither player can do better than matching the other player's strategy. Example is 1/1/1, 2/2/2, 3/3/3
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coordination failure
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playing a less efficient equilibrium in a coordination game. Example, playing 1/1/1 rather than 3/3/3
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multiple equilibrium
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In a coordination game when there are different possible equilibrium points, but usually are at different rankings of efficiency. Examples are 1/1/1, 2/2/2, or 3/3/3
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coordination game is unlike prisoner's dilemma because no one has a _________.
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dominant strategy
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In Prisoner's Dilemma equilibrium is _____.
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inefficient
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run on the bank
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occurs when many depositors withdraw cash from their accounts all at once, essentially a coordination game because it has two equilibriums. I have a reason to panic if I think you are going to panic, and I have a reason to sit tight if you are going to sit tight (the better equilibrium.) …
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strategic complementarity
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payoff to an activity is increasing in the number of others who engage in the activity. (An alliance partner's strategies are complementary).
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"Chicken" game equilibrium
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If you only receive money as long as someone chooses $2, and you can choose $2 or $10, in a situation of 3 players, the equilibrium is two players choosing $10 and one player choosing $2 because that is the most efficient way to win.
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Duopoly
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An oligopoly market with only two firms
ex. coke and pepsi
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Joint-monopoly solution
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nticompetitive behaviour by firms, normally an oligopoly, in order to secure monopoly profits for the firms as a group. Essentially, shared monopoly requires some form of collusion but stops short of being a formal cartel. It is therefore similar to tacit collusion. In a shared monopoly f…
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Grim trigger strategy
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Cooperate until your opponent defects. Then defect forever.
Ex: If you mean to me, I'll be mean to you forever.
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People generally discount ______.
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the future
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Monopolistic competition
Characteristics
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- lots of firms, each one small relative to the size of the industry
-no barriers to entry
-defined by product differentiation- a strategy firms use to achieve MARKET POWER by producing goods that have distinct + identities in the minds of consumers
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Monopolistic Competition demand curve
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Highly elastic
Downward sloping because the products aren't identical
The more competitors there are, the more elastic the demand curve is
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Horizontal Demand Curve
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perfectly elastic, perfect subsitututes
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vertical demand curve
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elasticity is zero
change in price leads to no change in quantity demanded, no substitutes
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externam cost (or negative externality)
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a cost of an activity that falls on people other than other than those who pursue the activity
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external benefit (positive externality)
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a benefit of an activity received by people other than those who pursue the activity
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externality
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an external cost or benefit of an activity that falls on someone other than the consumer.
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When all relevant benefits of an activity accrue directly to the person who carries it out (no externalities), the level of the activity that is best for the individual is _________ for society as a whole.
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also best
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When an activity produces externalities, individual self interest (produces/does not produce) the best allocation of resources
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does not produce
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Individuals who only consider their own costs/benefits tend to engage (too much/ too little) in activities that cause positive externalities and (too much/too little) in activities that cause negative externalities.
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too little, too much
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Revenue Formula
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T x D x D, or TD^2
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Cost Formula
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C = FIXED cost + VARIABLE cost
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Coase Theorem
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if at no cost people can negotiate the purchase and sale of the right to perform activities that cause externalities, they can always arrive at efficient solutions to the problems caused by externalities
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Pigouvian tax
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A Pigovian tax (also spelled Pigouvian tax) is a tax levied on a market activity that generates negative externalities
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Public goods
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non rival in consumption, non excludable
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Private goods
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rival, excludable
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common goods
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rival, non-excludable
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collective/club goods
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non-rival, excludable
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public goods
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non-rival, non-excludable
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ECON 2000: Exam 3