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Econ 10 11 12 terms

Microeconomics chapters 10, 11, and 12

QuestionAnswer
monopoly a market in which a single firm sells a product that does not have any close substitutes
market power the ability of a firm to affect the price of its product
barrier to entry something that prevents firms from entering a profitable market
patent the exclusive right to sell a new good for some period of time
network externalities the value of a product to a consumer increases with the number of other consumers who use it
natural monopoly a market in which the economies of scale in production are so large that only a single large firm can earn a profit
deadweight loss from monopoly a measure of the inefficiency from monopoly; equal to the decrease in the market surplus
rent seeking the process of using public policy to gain economic profit
price discrimination the practice of selling a good at different prices to different consumers
monopolistic competition a market served by many firms that sell slightly different products
product differentiation the process used by firms to distinguish their products from the products of competing firms
oligopoly a market served by a few firms
game theory the study of decision making in strategic situations
concentration ratio the percentage of the market output produced by the largest firms
duopoly a market with two firms
cartel a group of firms that act in unison, coordinating their price and quantity decisions
price-fixing an arrangement in which firms conspire to fix prices
game tree a graphical representation of the consequences of different actions in a strategic setting
dominant strategy an action that is the best choice for a player, no matter what the other player does
duopolists' dilemma a situation in which both firms in a market would be better off if both chose the high price, but each chooses the low price
Nash equilibrium an outcome of a game in which each player is doing the best he or she can, given the action of the other players
low-price guarantee a promise to match a lower price of a competitor
grim-trigger strategy a strategy where a firm responds to underpricing by choosing a price so low that each firm makes zero economic profit
tit-for-tat a strategy where one firm chooses whatever price the other firm chose in the preceding period
price leadership a system under which one firm in an oligopoly takes the lead in setting prices
kinked demand curve model a model in which firms in an oligopoly match price cuts by other firms, but do not match price hikes
payoff matrix a matrix or table that shows, for each possible outcome of a game, the consequences for each player
limit pricing the strategy of reducing the price to deter entry
contestable market a market with low entry and exit costs
marginal principle increase the level of an activity as long as its marginal benefit exceeds its marginal cost. Choose the level at which the marginal benefit equals the marginal cost
profit formula profit= total revenue-total cost
A firm has an opportunity for price discrimination if three conditions are met: 1. Market power. 2. Different consumer groups. 3. Resale is not possible.
Created by: june6honey