Econ SG 3

patent

a government rule that gives the inventor the legal right to make, use, or sell the invention for a limited time

natural monopoly

a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms

kinked demand curve

a perceived demand curve that arises when competing oligopoly firms commit to match price cuts, but not price increases

how is the demand curve perceived by a perfectly competitive firm different from the demand curve of a monopolist?

a perfectly competitive demand curve is horizontal (no price control) , and the demand curve for a monopolist is downwards sloping. (you do have price control)

product differentiation

a positioning strategy that some firms use to distinguish their products from those of competitors

imperfectly competitive

firms and organizations that fall between the extremes of monopoly and perfect competition

four-firm concentration ratio

the percentage of total sales in the industry that are accounted for by the largest four firms

ch 10 how does the decision process for maximizing profit in monopolistic competition compare to monopoly

the process is the same

what is the goal of antitrust policies?

1. gives the gov the power to approve or block mergers 2. gives gov power to break up companies into separate companies if it has gotten too big

Ch 11 If an industry is up of only four firms that each has exactly 25% of the revenues in the industry, what is the four-firm concentration ratio and the herfindahl-hirschman index in this industry?

100 and 2500

Monopoly

A market in which there are many buyers but only one seller.

Oligopoly

A market structure in which a few large firms dominate a market

ch 8 If is possible for a firm to enter and exit a market, the market meets one of the conditions for which of the following?

A perfectly competitve market

Prisoner's Dilemma

a game that forces people to choose between cooperation and competition

how does the average cost curve help to show whether a firm is making profits or losses?

P > ATC: profit P < ATC: loss

ch 11 the U.S. antitrust has laws to prevent monopolies. These laws can be detrimental for which of the following reasons?

Some monopolies can obtain economies of scale

shutdown point

The lowest point on the average variable cost curve. When price falls below the minimum point on AVC, total revenue is insufficient to cover variable costs and the firm will shut down and bear losses equal to fixed costs.

what is predatory pricing?

The pricing of a product below cost with the intent to drive competitors out of the market.

regulatory capture

The situation that occurs when a governmental regulatory agency ends up being controlled by the industry that it is supposed to be regulating.

game theory

a branch of mathematics that economists use to analyze the strategic behavior of decision-makers

market share

a company's product sales as a percentage of total sales for that industry

tying sales

a situation where a customer is allowed to buy one product only if the customer also buys another product

concentration ratio

an early tool to measure the degree of monopoly power in an industry; measures what share of the total sales in the industry are accounted for by the largest firms, typically the top four to eight firms

which of the following would make collusions harder?

an inability to detect price changes

Herfindahl-Hirschman Index (HHI)

an index of market concentration found by summing the square of percentage shares of firms in the market

Duopoly

an oligopoly consisting of only two firms

Oligopoly firms acting individually may seek to gain profits ___________________________ .

by expanding levels of output and cutting prices

in competitive settings profits will lead firms to ______ and losses will lead firms _____ so the incentives for producing at a low cost and coming up with new ways of pleasing customers is strong

enter to market, exit

if congress reduced the patent production from 20 years to 10 years, what would likely happen to the amount of private research and development?

if the patent is reduced, the amount of private research and development would decrease bc there is not as much profit

ch 10 compared to perfect competition and monopoly, the monopolistic competition market structure is best described as

in between perfect competition and monopoly

how does a perfectly competitive firm decide the price to charge?

it does not decide what price to charge since it is the price taker, the overall market decides the price

antitrust laws

laws that give government the power to block certain mergers and even in some cases to break up large firms into smaller ones.

legal monopoly

legal prohibitions against competition, such as regulated monopolies and intellectual property protection

monopolistic competition

many firms competing to sell similar but differentiated products

ch 8 A perfect competition market structure features how many producers or consumers?

many producers and many consumers

ch 9 In a monopoly market structure, how does marginal revenue compare to the price?

marginal revenue is less than the price

which of the following is a valid criticism of the reduction of competition that results from corporate mergers?

merged firms can increase prices and maintaining permanently higher profits

ch 9 which of the following is a monopoly in which economies of scale causes efficiency to increase as a firm grows in size?

natural monopoly

ch 8. A perfect competition market structure features how many barriers to entry?

no barriers

your company is in a perfectly competitive market. you have been told you can use advertising in the short run to increase sales. Would you create an aggressive advertising campaign for your product?

no, there is 0 price control. no matter how much advertising you would do, it would not affect much for the individual firm.

ch 10 general motors, ford, and honda all manufacture automobiles and exemplify which of the following?

oligopoly

restrictive practices

practices that reduce competition but that do not involve outright agreements between firms to raise prices or to reduce the quantity produced

When the regulator sets a price that a firm cannot exceed over the next few years, the regulator is enforcing

price cap regulation

suppose the local electricity utility, a legal monopoly based on economies of scale, was split into 4 firms of equal size with the idea that eliminating the monopoly would promote competitive pricing of electricity. what do you anticipate would happen to prices?

prices would go up due to cost of production. the smaller firms would have a higher cost of production, they would pass higher cost to consumers.

ch 8 in economic terms why do businesses enter a market in perfect competition?

profit motive

practices that reduce competition without actual documented agreements between firms to raise price are commonly referred to as

restrictive prices

which of the following is not a characteristic of a perfectly competitive market?

small numbers of sellers

marginal revenue

the additional income from selling one more unit of a good; sometimes equal to price

what is a price taker firm?

the firm has 0 price control, it has to take the price that the market gives

which of the following is true with respect to the demand curve for a monopolistic curve?

the firm's demand curve is equal to the market demand curve bc consumers have no other options

barriers to entry

the legal, technological, or market forces that may discourage or prevent potential competitors from entering a market

break-even point

the level of sales at which profit is zero

merger

when 2 or more companies join to form a single firm

predatory pricing

when an existing firm uses sharp but temporary price cuts to discourage new competition

collusion

when firms act together to reduce output and keep prices high

cost-plus regulation

when regulators permit a regulated firm to cover its costs and to make a normal level of profit

price cap regulation

when the regulator sets a price that a firm cannot exceed over the next few years

long run equlibrium

where all firms earn 0 economic profits producing the output level where P=MR=MC and P=AC

ch 11 The U.S. has antitrust laws to prevent monopolies. These laws are beneficial for which of the following reasons

without them the firms would set prices where they want them from