Chapters 14 and 15: Market Power and Long Run Profitability Flashcards
Market Power
the extent to which higher prices will not cause lost sales to competitors
Market Structure
a competitive markey in which you are conducting business
Perfect Competition Structure
all businesses sell identical goods, where there are many sellers and buyers, possessing NO market power
Monopoly Structure
only one big seller in a market, who can raise prices substantially without losing business due to scarcity, possessing LOTS of market power
Oligopoly Structure
only a few major sellers in a market, with somewhat varying products, possessing SUBSTANTIAL market power
Monopolist Competition Structure
many small businesses with differing products, with increasing uniqueness, possessing LOTS of market power
Firm Demand Curve
how the quantity demanded of a specific business varies as it changes the price, aka market demand curve
Marginal Revenue
price + (change in price x quantity)
Fundamental Tension
stating that more competition brings greater benefits to all, and less competition leads to greater market power and profits for incumbent firms.
Competition Encouragement Policies
anti-collusion laws, merger laws, illegal to attempt to monopolize, encourages international trade
Market Power leads to….
higher prices, inefficiently smaller quantity, large economic profit, survival despite high costs
Economic Profit
the total revenue a business recieves, less both explicit and financial costs and the implicit opportunity costs
Average Revenue
total revenue / quantity = demand curve = price
Average Costs
total costs / quantity = fixed variable / quantity
Free Entry and Exit in the Long Run
economic profit will be eliminated and price will = average cost.
