Market Structure Flashcards
Price-Taking Firm
A firm whose actions have no effect on the market price of the good or service it sells
Price Taking Consumer
Consumer whose actions have no effect on the market price of the good or service they buy
Perfectly Competitive Market
Market in which all market participants are price takers
Free Entry and Exit
Quality an industry has when new firms can easily enter into the industry and existing firms can easily leave the industry
Monopolist
The only producer of a good that has no close substitutes.
Monopoly
An industry controlled by a monopolist
Barrier to Entry
something that prevents other firms from entering the industry
Natural Monopoly
When economies of scale provide a large cost advantage to a single firm that produces all of an industry’s output
Patent
Gives an inventor a temporary monopoly in the use or sale of an invention
Copyright
Gives the creator of a literary or artistic work the sole right to profit from that work
Oligopoly
An industry with only a small number of firms
Oligopolist
A producer in an oligopoly
Imperfect Competition
When no one firm has a monopoly but producers nonetheless realize that they can affect the market prices
Concentration Ratios
Measure the percentage of industry sales accounted for the “X” largest firms, for example the four firm concentration ratio or the eight-firm concentration ratio
Herfindahl-Hirschman Index
The square of each firm’s share of market sales summed over the industry. It gives a picture of the industry market structure
Monopolistic Competition
Market structure in which there are many competing firms in an industry, each firm sells a differentiated product, and there is free entry into and exit from the industry in the long run
Price Taking Firm’s Optimal Output Rule
A price taking firm’s profit is maximized by producing the quantity of output at which the market price is equal to the marginal cost of the last unit produced
Shut down price
The minimum average variable cost- if a firm falls below this point they have to shut down
Short Run Individual Supply Curve
Represents how an individual firm’s profit-maximizing level of output depends on the market price, taking fixed cost as given
Industry Supply Curve
Shows the relationship between the price of a good and the total output of the industry as a whole
Short Run Market Equilibrium
When the quantity supplied equals the quantity demanded, taking the number of producers as given
Long Run Market Equilibrium
When the quantity supplied equals the quantity demanded, given that sufficient time has elapsed for entry into and exit from the industry to occur
Long Run Industry Supply Curve
Shows how the quantity supplied responds to the price once producers have had time to enter or exit the industry
