ECON 212 Final Exam Review
Product Differenciation increases _______
Bargaining Power
Marginal Revenue lies ______ the demand curve
Below
Vertical Integration
Companies along a product chain combine to form a single company
Collusion
Competitors get together and agree that everyone will charge a high price
When new firms enter a market your market power and demand ______
Decrease
Supply-side Strategies
Develop unique cost advantages
Expect other firms to enter the market if:
Economic Profit is being earned
Oligopy
Few large firms; must consider strategic interactions; Some Market Power; Downsloping Firm Demand Curve
Demand-side Strategies
Find ways to create customer lock-in
Average Cost
Firms total costs / Quantity produced
Average Revenue
Firms total revenue / Quantity supplied
Checkmark Method
If you put a check next to each player's best response, an outcome with a check from each player is a Nash equilibrium
Search Goods use ________ Advertising
Informative
Informative Advertising
Informs potential customers about product
Relationship-Specific Investment
Investment that is more valuable if the current business relationship continues
The better your Next Best Alternative the ______ Bargaining Power you have
More
Barriers to Entry
Obstacles that make it difficult for new firms to enter a market
Hurdle Method
Offer lower prices only to buyers that are willing to overcome some hurdle
Hold-up Problem
Once you have made a relationship-specific investment, the other side may try to renegotiate to get a better deal
Monopoly
One seller; only substitute is other goods; Maximum Market Power; Firm Demand Curve is Market Demand Curve
Supply and Demand diagrams assume ______
Perfect Competition
Persuasive Advertising
Persuade or manipulate potential customers into thinking they would enjoy the product
Experience Goods use _______ Advertising
Persuasive
Five Forces
Reveal underlying sources of profitability; Show potential threats of profitability
Deterrence Strategies
Scare away potential entrants with credible threats
Output Effect
Sell one more unit, revenue increases by the price of the additional item sold
Price Discrimination
Selling the same product at different prices to different people
How to chose Price with Market Power
Set the highest price at which you can sell; Look UP to the demand curve
Firm's Demand Curve
Summarizes the quantity demand from your firm as price changes
Marginal Revenue
THe additional revenue gained from selling one more unit
Market Power
The ability to alter the market price of a good or service without losing sales to competitors
Nash Equilibrium
The choice that each person makes is the best responce to what others' are choosing
Variable Cost
The cost of inputs that can be adjusted in the short run
Fixed Cost
The costs of inputs that cant be adjusted in the short run
Price and Quantity Short Run
The horizon over which the production capacity and the number of the type of competitors you face DO NOT change
Price and Quantity Long Run
The horizon over which you and your rivals may expand or contract your production capacity, and new rivals may enter the market along with existing firms exiting
Game Theory
The study of strategic interactions
Discount Effect
To sell one more unit, you have to lower the price on all units sold
Accounting Profits
Total revenue - out of pocket costs
Economic Profits
Total revenue - total opportunity cost
Determinants of Long-term Profitability
Type and intensity of competitive forces; Decisions made in responce to these forces
Average Costs on a graph are often ______ shaped
U
Price Discrimination fixes ______
Underproduction
The Bertrand Paradox
With no product differentiation, even one competitor can force your economic profits to zero
Bargaining Power
Your ability to negotiate a good deal
Strategic Interaction
Your best choice depends on what other chose, and their best choice depends on what you chose
Next Best Alternative
value of the best option outside of the deal
What are the Five Forces
1. Potential Entrants 2. Suppliers 3. Customers 4. Potential Substitutes 5. Current Competitors
Experience Good
A good which you have to use or consume in order to evaluate
Search Good
A good you can evaluate before buying
Perfect Competition
A market structure in which a large number of firms all produce the same product; No Market Power; Flat Demand Curve
Payoff Table
A table that lists your choices in each row, and the others' choices in each column
Constant Returns
All firms have similar cost curves in the long run
Regulation
Mobilize the government to prevent entry
If Ecomic Profit = 0, then Price = _____
Average Costs
How to chose Quantity with Market Power
Keep producing until Marginal Revenue = Marginal Cost; Look DOWN to see quantity
Free Entry eliminates positive economic profit in the _______
Long Run
Decreasing Returns
Long run cost curves sloe upward
Market Structure determines ______
Long-term Profitability
Monopolistic Competition
Many firms with differenciated products; Some Market Power; Downsloping Firm Demand Curve
