Unit 4 Flashcards
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What is imperfect competition?
Market structures between perfect competition and monopoly where firms have market power.
What is market power?
The ability of a firm to raise prices above marginal cost without losing all customers.
What are barriers to entry?
High startup costs, patents, or regulations limiting competition.
What is product differentiation?
Selling similar but not identical products based on quality, brand, features, location, or service.
How do firms in imperfect competition maximize profit?
By producing where marginal revenue equals marginal cost (MR = MC).
What is allocative inefficiency?
Producing less than the socially optimal quantity and charging prices above marginal cost.
What is deadweight loss in imperfect competition?
Loss of total surplus due to allocative inefficiency.
What characterizes monopolistic competition?
Many firms, differentiated products, low barriers to entry, non-price competition.
What characterizes an oligopoly?
Few interdependent firms, high barriers to entry, strategic behavior like price leadership.
What is a duopoly?
An oligopoly with two firms (e.g., Coca-Cola and Pepsi).
What is a monopoly?
A single firm dominates the market with high barriers to entry.
What is a natural monopoly?
A market where one firm can supply at lower cost than multiple firms.
How do price elasticity and market structure relate?
Perfect competition has perfectly elastic demand; imperfect competition has downward-sloping demand.
What is markup pricing?
Setting price above marginal cost by a percentage markup.
What is price discrimination?
Charging different customers different prices based on willingness to pay.
What is non-price competition?
Competing through advertising, branding, product features, and service.
What are dynamic efficiencies?
Innovation and product improvement incentives due to profits in imperfect competition.
What is X-inefficiency?
Firms failing to minimize costs due to lack of competitive pressure.
Why might government intervention be necessary?
To reduce inefficiencies and protect consumers (antitrust laws, regulation).
Give examples of monopolistic competition.
Restaurants, clothing retailers, beauty salons.
Give examples of oligopolies.
Airlines, mobile carriers, auto manufacturers.
Give examples of duopolies.
Coca-Cola vs Pepsi, Boeing vs Airbus.
Give examples of monopolies.
Utilities like electricity and water services.
What is the role of perfect competition in theory?
Benchmark for measuring efficiency and welfare compared to real-world markets.
