Monopolistic competition and oligopoly

game theory

the study of the strategic behavior of decision makers

oligopoly

A market structure characterized by a few large producers, of either standardized or differentiated products, operating in industries with extensive entry barriers. These producers are price makers and behave strategically when making decisions related to the features, prices, and advertising of their products

monopolistic competition

A market structure characterized by a relatively large number of sellers producing a differentiated product, for which they have some control over the price they charge, in a market with relatively easy market entry and exit.

Profit per unit

Price - Average total cost

Allocative efficiency

Producing the goods and services that are most wanted by consumers in such a way that their marginal benefit equals their marginal cost

Profit

Profit = Total revenue - total cost Profit = Profit per unit x output

deadweight loss

the value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium

Average total cost

Average fixed cost + Average variable cost

normal profit

The level of profit that occurs when total revenue is equal to total cost.

loss

The level of profit that occurs when total revenue is less than total cost

Product differentiation

The strategy of distinguishing ones firms product from the competing products of other firms.

dominant strategy

a situation in which a particular strategy yields the highest payoff regardless of the other players strategy

nash equilibrium

an outcome in which, unless the players can collude, neither player has an incentive to change his or her strategy

Profit maximizing rule

produce at the quantity at which marginal revenue (MR) = Marginal cost (MC)

Productive efficiency

producing output at the lowest possible average total cost of production; using the fewest resources possible to produce a good or service.

mutual interdependence

a situation in which the strategy followed by one producer will likely affect the profits and behavior of another producer.

payoff matrix

a table showing the potential outcomes arising from the choices made by decision makers

economic profit

the level of profit that occurs when total revenue is greater than total cost

product differentiation

the strategy of distinguishing one firms product from the competing products of other firms

excess capacity

the underutilization of resources that occurs when the quantity of output a firm chooses to produce is less than the quantity that minimizes average total cost