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ECON 101

TEST 3

TermDefinition
market structure the conditions in an industry, such as number of sellers, how easy or 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
marginal revenue the additional revenue gained from selling one more unit
shutdown point level of output where the marginal cost curve intersects the average variable cost curve at the minimum point of AVC; if the price is below this point, the firm should shut down immediately
entry the long-run process of firms entering an industry in response to industry profits
exit the 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
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 protect the right of inventors to produce and sell their inventions
legal monopoly legal prohibitions against competition, such as regulated monopolies and intellectual property protection
monopoly a situation in which one 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 trademark
allocative efficiency producing the optimal quantity of some output; the quantity where the marginal benefit to society of one more unit just equals the marginal cost
marginal profit profit of one more unit of output, computed as marginal revenue minus marginal cost
differentiated product a product that is perceived by consumers as distinctive in some way
imperfectly competitive firms and organizations that fall between the extremes of monopoly and perfect competition
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
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
duopoly an oligopoly with only two firms
game theory a branch of mathematics often used by economists that analyzes situations in which players must make decisions and then receive payoffs based on what decisions the other players make
kinked demand curve a perceived demand curve that arises when competing oligopoly firms commit to match price cuts, but not price increases
prisoner’s dilemma a game in which the gains from cooperation are larger than the rewards from pursuing self-interest
Created by: EdL