Test 3 - Definitions Flashcards
Break even point
Level of output where the marginal cost curve intersects the average cost curve at the minimum point of AC; if the price is at this point, the firm is earning 0 economic profits
Entry
long-run process of firms entering an industry in response to industry profits
Exit
long-run process of firms reducing production and shutting down in response to industry losses
Long-run equilibrium
where all firms earn zero economic profits producing the output level where P = MR = MC and P = AC
Marginal revenue
the additional revenue gained from selling one more unit
Market structure
the conditions in an industry, such as # of sellers, how easy/difficult it is for a new firm to enter, and the type of products that are sold
Perfect competition
each firm faces many competitors that sell identical products
Price taker
a firm in a perfectly competitive market that must take the prevailing market price as given
Shutdown point
level of output where the marginal cost curve intersects the avg variable cost at the minimum point of AVC; if the price is below this point, the firm should shut down immediately
Allocative efficiency
producing the optimal quantity of some output; the quantity where the marginal benefit to society of one more unit just = the marginal cost
Barriers to entry
the legal, technological, or market forces that may discourage or prevent potential competitors from entering a market
Copyright
a form of legal protection to prevent copying, for commercial purposes, original works of authorship, including books and music
Deregulation
removing government controls over setting prices and quantities in certain industries
Intellectual property
the body of law including patents, trademarks, copyrights, and trade secret law that produce and sell their inventions
Legal monopoly
legal prohibitions against competition, such as regulated monopolies and intellectual property protection
Marginal profit
profit of one more unit of output, computed as marginal revenue minus marginal cost
Monopoly
a situation in which 1 firm produces all of the output in a market
Natural monopoly
economic conditions in the industry, for example, economies of scale or control of a critical resource, that limit effective competition
Patent
a government rule that gives the inventor the exclusive legal right to make, use, or sell the invention for a limited time
Predatory pricing
when an existing firm uses sharp but temporary price cuts to discourage new competition
Trade secrets
methods of production kept secret by the producing firm
Trademark
an identifying symbol or name for a particular good and can only be used by the firm that registered that tardemark
Cartel
a group of firms that collude to produce the monopoly output and sell at the monopoly price
Collusion
when firms act together to reduce output and keep prices high
Differentiated product
a product that consumers perceive as distinctive in some way
Duopoly
an oligopoly with only 2 firms
Game theory
a branch of mathematics that economists use to analyze situations in which players must make decisions and then receive payoffs based on what decision the other player makes
Imperfectly competitive
firms and orgs. that fall between the extremes of monopoly and perfect competition
Kinked demand curve
a perceived demand curve that arises when competing oligopoly firms commit to match price cuts but not price increases
monopolistic competition
many firms competing to sell similar but differentiated products
Oligopoly
when a few large firms have all or most of the sales in an industry
Prisoner’s dilemma
a game in which the gains from cooperation are larger than the rewards from pursuing self-interest
Product differentiation
any action that firms do to make consumers think their products are different from their competitors’
