Quiz 9 Flashcards
Prisoners’ dilemma
a game based on two premises: 1) Each player has an incentive to choose an action that benefits itself at the other player’s expense; and 2) When both players act in this way, both are worse off than if they had acted cooperatively.
Noncooperative equilibrium
Also known as Nash equilibrium - in game theory, each player takes action that is best for her, given the actions taken by other players; however, players do not take into account the effect of their actions on others.
Tacit collusion
cooperation among producers, without a formal agreement, to limit production and raise prices so as to raise one another’s profits.
Product differentiation
the attempt by firms to convince buyers that their products are different from those of other firms in the industry. If firms can so convince buyers, they can charge a higher price.
Zero-profit equilibrium
an economic balance in which each firm makes zero profit at its profit-maximizing quantity.
Physical capital
human-made goods such as buildings and machines used to produce other goods and services.
Factor distribution of income
the division of total income among labor, land, and capital.
Rental rate
the cost, explicit or implicit, of using a unit of either land or capital for a given period of time.
Dominant strategy
in game theory, an action that is a player’s best action regardless of the action taken by the other player.
Strategic behavior
actions taken by a firm that attempt to influence the future behavior of other firms.
Antitrust policy
legislative and regulatory efforts undertaken by the government to prevent oligopolistic industries from becoming or behaving like monopolies.
Price leadership
a pattern of behavior in which one firm sets its price and other firms in the industry follow.
Excess capacity
when firms produce less than the output at which average total cost is minimized; characteristic of monopolistically competitive firms.
Human capital
the improvement in labor created by the education and knowledge embodied in the workforce.
Value of the marginal product
the value of the additional output generated by employing one more unit of a given factor, such as labor.
Marginal productivity theory of income distribution
every factor of production is paid its equilibrium value of the marginal product.
Nash equilibrium
in game theory, the equilibrium that results when all players choose the action that maximizes their payoffs given the actions of other players, ignoring the effect of that action on the payoffs of other players; also known as noncooperative equilibrium.
Tit for tat
in game theory, a strategy that involves playing cooperatively at first, then doing whatever the other player did in the previous period.
Price war
a collapse of prices when tacit collusion breaks down.
Non-price competition
competition in areas other than price to increase sales, such as new product features and advertising; especially engaged in by firms that have a tacit understanding not to compete on price.
Brand name
a name owned by a particular firm that distinguishes its products from those of other firms.
Derived demand
for a factor results from (or is derived from) the demand for the output being produced.
Value of the marginal product curve
a graphical representation showing how the value of the marginal product of a factor depends on the quantity of the factor employed.
Time allocation
the decision about how many hours to spend on different activities, which leads to a decision about how much labor to supply.
