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