Vocabulary: Unit Five Flashcards
Price taker
A firm that can sell as much as it wants at the market price without affecting the market price, but can’t sell anything at a price above the market price
Marginal revenue
The amount of revenue received for selling one more unit of product
Productive efficiency
When a firm produces at the lowest per unit cost possible
Lowest per unit cost
Output level where average total cost is at its minimum
Allocatively efficient
When firm’s allocate resources so the number and type of goods or services they produce are the same as what consumers value
Monopoly
An industry with only one firm producing a good or service with no close substitutes with barriers to entry that prevent new firm’s from entering the industry, and typically with positive economic profits
Barriers to entry
Things that prevent new firm’s from entering an industry
Market power
Price-setting ability
Profit maximizing level of output
Where marginal cost equals marginal revenue
Profit maximizing price
The price consumers are willing to pay for the profit-maximizing level of output
Monopolist’s profits
Total revenue minus total costs
Deadweight loss
The lost opportunity to produce output whose benefit to consumers is greater than the cost of production
Price discrimination
Selling the same product to different consumers at different prices based on demand difference
Arbitrage
Lower-price consumers reselling to higher price consumers
Natural monopoly
A firm that experiences decreasing average total cost over the whole range of production demanded in the market
Fair return
Average cost pricing; the monopoly is able to charge a price equal to average total cost
Monopolistically competitive industry
Imperfect competition because firms have some control over price of output; many firms, differentiated products, price-searching, free entry and exit, non price competition
Non-price competition
Advertising; competition unrelated to price
Oligopoly
Few competitions, independent firm’s, barriers to entry
Collusion
Firm’s jointly determine price or output to increase profits
Cartel
Formal collusion agreement
Tacit collusion
Unspoken or unwritten collusion agreements
Game theory
Tracks strategic moves by a firm and countermoves by rival firms; decisions regarding pricing and output levels depend on rival’s choices
Price leadership
A dominant firm sets a price and other firms in the industry take that price and sell whatever quantity they can
Cost-plus pricing
Output price is determined by adding a specific percentage markup to average variable cost
Kinked demand curve
Firm’s think rivals will follow price cuts but not price raises
Horizontal merger
Combines two firms that produce similar products
Vertical merger
Combines two firms that produce products used in different stages of the production process of a good
Conglomerate merger
Combines two firms that produce products in two different industries
Market concentration
A measure of how dominant the four largest firms are in an industry
Antitrust legislation
Aimed at businesses trying to restrain trade or significantly reduce competition
Sherman Act of 1890
Made it illegal to monopolize or attempt to monopolize an industry
Clayton Act of 1914
Gave the government more enforcement power against anticompetitive business procedures
Federal Trade Commission Act of 1914
Has the power to investigate and hold hearings regarding unfair business practice
Cellar-Kefauver Act of 1950
Banned vertical and conglomerate mergers that would unreasonable restrain trade
Hart-Scott-Rodino Act of 1980
Allowed for businesses organized either as proprietorships or partnerships to be reviewed for monopolistic business practices
