Chapter 7: Monopoly, Oligarchy and Monopolistic Competition

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perfectly discrimination monopolist

a firm that charges each buyer exactly his/her reservation price

price setter

a firm that has at least some control over the market price of a product

market power

a firm's ability to raise the price of a good without loosing all its sales

average fixed cost

a firm's fixed cost divided by its level of output

average total cost (ATC)

a firm's total cost divided by its level of output

natural monopoly

a monopoly that results from economies of scale (increasing returns to scale)

constant returns to scale

a production process is said to have constant returns to scale if, when all inputs are changed by a given proportion, output changes by the same proportion

increasing returns to scale (or economies of scale)

a production process is said to have increasing returns to scale if, when all inputs are changed by a given proportion, output changes by more than that proportion

perfect hurdle

a threshold that completely segregates buyers whose reservation prices lie above it from others whose reservation prices lie below it, imposing no cost on those who jump the hurdle

pure monopoly

the only supplier of a unique product with no close substitutes

monopolistic competition

an industry structure in which a large number of firms produce slightly differentiated products that are reasonably close substitutes for one another

oligopoly

an industry structure in which a small number of large firms produce products that are either close or perfect substitutes

marginal revenue

the change in a firm's total revenue that results from a one-unit change in output

price discrimination

the practice of charging different buyers different prices for essentially the same good or service

hurdle method of price discrimination

the price by which a seller offers a discount to all buyers who overcome some obstacle


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