Reading 9- The Firm and Market Structure

Conditions for increased chances of collusion to happen (no. of firms, market shares, differentiation, cost structure, order size and frequency of deliveries, threat of retaliation, barrier to entry)

1.There are just a few firms or one of the firms is dominant. Firms should not all have similar market shares. Otherwise, the competitive forces would overshadow the benefits of collusion. 2. Products are homogeneous. 3. Firms have similar cost structures. 4. Order sizes are small and deliveries are frequent. 5. There is a threat of severe retaliation from competitors for breaking a collusive agreement. 6. Collusion among incumbent firms is likely to be a barrier to new entrants.

Characteristics of monopoly (No. of firms, product differentiation, pricing power, barriers of entry and exit, competition on other factors)

- A single firm - No good substitutes - Significant pricing power - Very high barriers of entry and exit - Advertising used to compete with substitutes

Characteristics of oligopoly (No. of firms, product differentiation, pricing power, barriers of entry and exit, competition on other factors)

- Few firms - Homogeneous products that are very good substitutes OR differentiated by advertising and branding - Some to significant pricing power - High barriers of entry and exit - Advertising and marketing

Conditions when collusion is most likely (no. of firms, product differentiation, cost structure, frequency and size of purchase, threat of retaliation for breaking collusion agreement, barriers to entry)

- Few number of firms - Low level of product differentiation - Similar cost structures - Purchases are small and frequent - High level of threat of retaliation - High barriers to entry

Characteristics of perfect competition (No. of firms, product differentiation, pricing power, barriers of entry and exit, competition on other factors)

- Many firms - Homogeneous products, perfect substitutes (no differentiation) - No pricing power - Very low barriers of entry and exit - No advertising or branding

Characteristics of monopolistic competition (No. of firms, product differentiation, pricing power, barriers of entry and exit, competition on other factors)

- Many firms - Products are good substitutes but differentiated - Some pricing power - Low barriers of entry and exit - Heavy advertising and marketing

The following information applies to a start-up company solely owned by an entrepreneur. Value Total units produced 3,550 Average revenue $1,110 Average variable cost $750 Total fixed cost $300,000 Total investment $1,550,000 Required rate of return 12.5% Opportunity cost of owner's labor $125,000 The company's economic profit is closest to: A. $659,250. B. $784,250. C. $318,750.

A. Economic profit = Accounting profit - Total implicit opportunity costswhere Accounting profit = Total revenue - Total variable costs - Total fixed costs Total opportunity costs = opportunity cost of capital + opportunity cost of labor C is incorrect because it calculates the normal profit or the total implicit opportunity cost. B is incorrect because it does not take into account the opportunity cost of labor. Total implicit opportunity cost = $1,550,000 × 0.125 = $193,750. Economic profit = $978,000 - $193,750 = $784,250.

Which characteristic is a firm least likely to exhibit if it faces a downward sloping demand curve for its product(s), many competitors, and zero economic profits in the long run? A. No pricing power B. Low barriers to entry C. Differentiated product

A. The characteristics of monopolistic competition include a large number of competitors, low pricing power, and the production of differentiated products (through advertising and other non-price strategies), but these still result in some pricing power. The ease of entry results in zero economic profits in the long run. B is incorrect. Low barriers to entry are a characteristic of monopolistic competition. C is incorrect. Product differentiation is a characteristic of monopolistic competition.

he following data apply to a firm operating in perfect competition. Quantity Revenue Cost 21 $210 $138 22 $220 $145 23 $230 $154 24 $240 $165 The firm's profit maximizing output (in units) is most likely: A. 23. C. in excess of 24. B. 21.

A. Under perfect competition, economic profits are maximized when marginal revenue equals marginal cost—in this case, marginal cost crosses $10 per unit. Profits are maximized at 23 units of production because marginal cost is in excess of marginal revenue at 24 units. C is incorrect. It represents the minimum total cost point for the given data, not the profit maximizing point. B is incorrect. At and beyond 24 units, marginal costs exceed marginal revenue.

Aquarius, Inc. is the dominant company and the price leader in its market. One of the other companies in the market attempts to gain market share by undercutting the price set by Aquarius. The market share of Aquarius will most likely: A. increase. B. decrease. C. stay the same.

A. As prices decrease, smaller companies will leave the market rather than sell below cost. The market share of Aquarius, the price leader, will increase.

An agricultural firm operating in a perfectly competitive market supplies wheat to manufacturers of consumer food products and animal feeds. If the firm were able to expand its production and unit sales by 10% the most likely result would be: A. a 10% increase in total revenue. B. a 10% increase in average revenue. C. an increase in total revenue of less than 10%.

A. Under perfect competition, price is dictated by the market. The firm has no control or influence over the price. So if the firm sells one more unit, the total revenue will rise by the price per unit. The price per unit will not change because the firm makes another unit.

One disadvantage of the Herfindahl-Hirschmann Index is that the index: A. is difficult to compute. B. fails to reflect low barriers to entry. C. fails to reflect the effect of mergers in the industry.

B. The Herfindahl-Hirschmann Index does not reflect low barriers to entry that may restrict the market power of companies currently in the market.

Six companies in an industry have the following market shares: Company A B C D E F Market Share(%) 30 25 16 12 10 7 If Companies D and F merge into a new Company, G, the industry's three-company concentration ratio would be closest to: A. 72%. B. 74%. C. 71%.

B. The concentration ratio for the top three companies would be 74%: A (30%) + B (25%) + G (12% + 7%). A is incorrect. 72% is the concentration ratio of the top three companies if the two smallest merge: A (30%) + B (25%) + [E (10%) + F (7%)]. C is incorrect. 71% is the concentration ratio of the original top three companies: A (30%) + B (25%) + C (16%).

Over time, the market share of the dominant company in an oligopolistic market will most likely: A. increase. B. decrease. C. remain the same.

B. The dominant company's market share tends to decrease as profits attract entry by other companies.

With its existing production facilities, a monopolist firm can produce up to 100 units. It faces the following demand and cost schedules: Output Price Total Costs ($) 0 3,000 600 20 2,800 10,600 40 2,600 32,600 60 2,400 66,600 80 2,200 112,600 100 2,000 170,600 The optimal output level for this producer (in units) is closest to: A. 100. B. 60. C. 20.

B. The optimal output level is 60 units because that level produces the highest profit C is incorrect. Although it is the highest price level (with output > 0), marginal revenue exceeds marginal cost, the profit of $45,400 can be further increased by additional output. Notice though that this is the widest spread between MR and MC. A is incorrect. Although this is the production capacity level, and the highest level of revenue possible, it should not be the chosen output level because total profit can be increased by lowering production to only 60 units.

Which of the following is the least likely outcome when a monopolist adopts first-degree price discrimination because of customers' differing demand elasticities? A. The output increases to the point at which price equals the marginal cost. B. The monopolist shares the total surplus with consumers. C. The price for a marginal unit decreases to less than the price for other units.

B. In a monopoly, perfect price discrimination results in the total surplus being kept by the producer, the monopolist. C is incorrect. When a monopolist adopts perfect price discrimination, the price for the marginal unit will be lower than average price. A is incorrect. Under perfect price discrimination, output increases to the point where price equals marginal cost.

The demand schedule in a perfectly competitive market is given by P = 93 − 1.5Q (for Q ≤ 62) and the long-run cost structure of each company is: Total cost: 256 + 2Q + 4Q2 Average cost: 256/Q + 2 + 4Q Marginal cost: 2 + 8Q New companies will enter the market at any price greater than: A. 8. B. 66. C. 81.

B. The long-run competitive equilibrium occurs where MC = AC = P for each company. Equating MC and AC implies 2 + 8Q = 256/Q + 2 + 4Q. Solving for Q gives Q = 8. Equating MC with price gives P = 2 + 8Q = 66. Any price above 66 yields an economic profit because P = MC > AC, so new companies will enter the market.

Upsilon Natural Gas, Inc. is a monopoly enjoying very high barriers to entry. Its marginal cost is $40 and its average cost is $70. A recent market study has determined the price elasticity of demand is 1.5. The company will most likely set its price at: A. $40. B. $70. C. $120.

C.

A firm in a market environment characterized by monopolistic competition is most likely to: A. continue to experience economic profit in the long run. B. have a well-defined supply function reflecting its marginal and average costs. C. have many competitors each following its own product differentiation strategy.

C. As the name implies, monopolistic competition is a hybrid market structure. The most distinctive factor in monopolistic competition is product differentiation. Although the market is made up of many firms that compose the product group, each producer attempts to distinguish its product from that of the others, and product differentiation is accomplished in a variety of ways. A is incorrect. Just as with the perfectly competitive market structure, with relatively low entry costs, more firms will enter the market and lure some customers away from the firm making an economic profit. The loss of customers to new entrant firms will drive down the demand for all firms producing similar products. In the long run for the monopolistically competitive firm, economic profit will fall to zero. B is incorrect. In monopolistic competition, there is no well-defined supply function. The information used to determine the appropriate level of output is based on the intersection of MC and MR. However, the price that will be charged is based on the market demand schedule. The firm's supply curve should measure the quantity the firm is willing to supply at various prices. That information is not represented by either marginal cost or average cost.

Suppose a market has 10 suppliers, each of them with 10 percent of the market. What are the concentration ratio and the HHI of the top four firms? A. Concentration ratio 4 percent and HHI 40 B. Concentration ratio 40 percent and HHI 0.4 C. Concentration ratio 40 percent and HHI 0.04

C. C is correct. The concentration ratio for the top four firms is 10 + 10 + 10 + 10 = 40 percent, and the HHI is 0.102 × 4 = 0.01 × 4 = 0.04.

Are monopolies always inefficient? A. No, because if they charge more than average cost they are nationalized. B. Yes, because they charge all consumers more than perfectly competitive markets would. C. No, because economies of scale and regulation (or threat of entry) may give a better outcome for buyers than perfect competition.

C. Economies of scale and regulation may make monopolies more efficient than perfect competition.

An amusement park charges a regular admission price, but offers various discounts to children under age 12, high school students, and adults over age 65. This pricing strategy is most accurately described as: A. first-degree price discrimination. B. second-degree price discrimination. C. third-degree price discrimination.

C. The amusement park segregates its customers based on a trait (age) and charges a different price to members of each group. This is an example of third-degree price discrimination.

The following equations have been developed for a company: Demand curve: P = 150 - 5 × Q Total revenue curve: TR = 150 × Q - 5 × Q^2 Marginal revenue curve: MR = 150 - 10 × Q Total cost curve: TC = Q^3 - 10 × Q^2 + 73 × Q + 120 Average cost curve: AC = Q^2 - 10 × Q + 73 + 120/Q Marginal cost curve: MC = 3 × Q^2 - 20 × Q + 73 P indicates price per unit, and Q indicates cost per unit. The profit maximizing output for this firm (in units) is closest to: A. 11. B. 8. C. 7.

C. The profit maximizing output will arise when MR = MC. MR = 150 - 10 × Q = MC = 3 × Q^2 - 20 × Q + 73 On reduction, this becomes: 3 × Q^2 - 10 × Q - 77 = 0 Only with Q = 7 will this equation be satisfied: 3 × 72 - 10 × 7 - 77 = 0 B is incorrect: it arises from setting P = MC 150 - 5 × Q = 3 × Q^2 - 20 × Q + 73: 3 × Q^2 - 15 × Q - 77 = 0 Solve for Q = 8.15 A is incorrect. Where P = AC and where TR = TC, profits = 0.

Pricing Interdependence:

DP↑ and MRP↑: demand and marginal revenue schedules associated with higher prices DP↓ and MRP↓: lower prices' demand and marginal revenue schedules. The two demand schedules intersect at the prevailing price (i.e., the price where price increase and price decrease are both equal to zero). the firm's overall demand equals the relevant portion of DP↑ and the relevant portion of DP↓: D = DP↑ + DP↓ A wide variety of cost structures are consistent with the prevailing price. If the firm has relatively low marginal costs, MC1, the profit-maximizing pricing rule established earlier, MR = MC, still holds for the oligopoly firm. Marginal cost can rise to MC2 and MC3 before the firm's profitability is challenged. If the marginal cost curve MC2 passes through the gap in marginal revenue, the most profitable price and output combination remains unchanged at the prevailing price and original level of output.

You are given the market demand function below. QD=210−2P Assuming the market equilibrium quantity is 40, calculate the consumer surplus.

First identify the demand curve: P = (210-QD)/2 = 105 - 0.5QD For QDE = 40, PE = 85 CS = 1/2x(105-85)x40 = 400

If the demand is elastic, a price increase will lead to a [...] in total revenue because the quantity will [...] by a greater percentage.

If the demand is elastic, a price increase will lead to a decrease in total revenue because the quantity will decrease by a greater percentage.

Demand characteristics of perfect competition (equilibrium price, slope of demand curve, economic profit)

In equilibrium: P = MR = MC Slope of demand curve = 0 - horizontal demand curve Zero economic profit in equilibrium

Demand characteristics of monopoly (equilibrium price, slope of demand curve, economic profit)

In equilibrium: P > MR = MC Downward sloping demand curve May have positive economic profit in long-run equilibrium Profit may be zero because of expenditures to preserve monpoly

Demand characteristics of oligopoly (equilibrium price, slope of demand curve, economic profit)

In equilibrium: P > MR = MC Downward sloping demand curve May have positive economic profit in long-run equilibrium Profit tends towards zero over time

Demand characteristics of monopolistic competition (equilibrium price, slope of demand curve, economic profit)

In equilibrium: P > MR = MC Downward sloping demand curve Zero economic profit in long-run equilibrium

Long-Run Monopolistic Equilibrium

In long-run equilibrium, output is still optimal at the level where MR = MC, which is Q1. Equilibrium price is determined from the demand curve. That price is P1 for the quantity Q1. Total revenue is the area of the rectangle P1 × Q1. Notice that unlike long-run equilibrium in perfect competition, in the market of monopolistic competition, the equilibrium position is at a higher level of average cost than the level of output that minimizes average cost. Average cost does not reach its minimum until output level Q2 is achieved. Total cost in this long-run equilibrium position is the area of the rectangle C1 × Q1. Economic profit is TR-TC, economic profit is zero because total revenue equals total cost: P1 × Q1 = C1 × Q1.

In perfect competition, the firm's supply schedule is represented by the [...] schedule. In monopolistic competition, there is no well-defined supply function. The information used to determine the appropriate level of output is based on the intersection of [...]. However, the price that will be charged is based on the [...]. The firm's supply curve should measure the quantity the firm is willing to supply at various prices. That information is not represented by either marginal cost or average cost.

In perfect competition, the firm's supply schedule is represented by the marginal cost schedule. In monopolistic competition, there is no well-defined supply function. The information used to determine the appropriate level of output is based on the intersection of MC and MR. However, the price that will be charged is based on the market demand schedule. The firm's supply curve should measure the quantity the firm is willing to supply at various prices. That information is not represented by either marginal cost or average cost.

In the long run, economic profit will attract other entrepreneurs to the market, resulting in the production of more output. The aggregate supply will [...] , shifting the industry supply (S1) curve to the [...], away from the origin of the graph. For a given demand curve, this increase in supply at each price level will [...] the equilibrium price

In the long run, economic profit will attract other entrepreneurs to the market, resulting in the production of more output. The aggregate supply will increase, shifting the industry supply (S1) curve to the right, away from the origin of the graph. For a given demand curve, this increase in supply at each price level will lower the equilibrium price

In the long run, the perfectly competitive firm will operate at the point where marginal cost equals [...], because at that point, [...] is no longer profitable: In equilibrium, price equals not only marginal cost (firm equilibrium) but also [...], so that total revenues equal total costs. This result implies that the perfectly competitive firm operates with [...] economic profit.

In the long run, the perfectly competitive firm will operate at the point where marginal cost equals the minimum of average cost, because at that point, entry is no longer profitable: In equilibrium, price equals not only marginal cost (firm equilibrium) but also minimum average cost, so that total revenues equal total costs. This result implies that the perfectly competitive firm operates with zero economic profit.

Monopolistic Short-Run Equilibrium

In the short run, the profit-maximizing choice is the level of output where MR = MC. Because the product is somewhat different from that of the competitors, the firm can charge the price determined by the demand curve. Therefore, Q is the ideal level of output and P is the price consumers are willing to pay to acquire that quantity. Total revenue is the area of the rectangle P × Q. The average cost of producing Q units of the product is ATC, and the total cost is the area of the rectangle ATC × Q. The difference between TR and TC is economic profit. The profit relationship is described as π = TR - TC (=Qx(P-ATC)) where π is total profit, TR is total revenue, and TC is total cost.

Why are average cost (AC) and marginal cost (MC) curves U-shaped?

Initially, the economies of scale allow the firms to generate more output for each additional input. However, as the productivity reaches a certain level, based on the law of diminishing returns, each additional unit of input will produce a progressively smaller increase in output.

Kinked demand curve model is an incomplete pricing strategy because...

It cannot determine the original prevailing price

Relationship between marginal revenue and price

MR=P[1−1/ϵp]

Pricing interdependence explains why there is stable price in oligopoly market because...

Multiple cost structures are consistent with the current price

Oligopoly markets' demand curves depend on the degree of [...]. In a market where collusion is present, the aggregate market demand curve is divided up by the individual production participants. Under non-colluding market conditions, each firm faces an individual demand curve. Furthermore, non-colluding oligopoly market demand characteristics depend on the [...] adopted by the participating firms. There are three basic pricing strategies: [...], the [...] assumption, and the [...].

Oligopoly markets' demand curves depend on the degree of pricing interdependence. In a market where collusion is present, the aggregate market demand curve is divided up by the individual production participants. Under non-colluding market conditions, each firm faces an individual demand curve. Furthermore, non-colluding oligopoly market demand characteristics depend on the pricing strategies adopted by the participating firms. There are three basic pricing strategies: pricing interdependence, the Cournot assumption, and the Nash equilibrium.

Pricing Interdependence exists in any market with [...]. It is common to assume competitors will match [...] and ignore [...]. This means market share of a firm will [...] when competitors [...] their prices but [...] when [...] are matched. This implies the elasticity is [...] for price increases than decreases. Two [...] are applicable - one for a price increase and one for a price decrease. The two curves will intersect at the [...]. This kink in the demand curve also causes a [...]

Pricing Interdependence exists in any market with price wars. It is common to assume competitors will match price reductions and ignore price increases. This means market share will increase when competitors increase their prices but remain the same when price drops are matched. This implies the elasticity is greater for price increases than decreases. Two demand functions are applicable - one for a price increase and one for a price decrease. The two demand curves will intersect at the current price. This kink in the demand curve also causes a discontinuous marginal revenue curve.

Monopoly demand curve

QD = a − bP or, P = a/b − (1/b)QD Therefore, total revenue = TR=P×Q=(a/b)QD−(1/b)Q2D ϵp = P/Qx(-b) = -bP/(a-bP) Because an increase in quantity requires a lower price, the marginal revenue schedule is steeper than the demand schedule. If the demand schedule is linear, then the marginal revenue curve is twice as steep as the demand schedule. MR = ∆TR/∆Q = (a/b) − (2/b)QD = P[1−1/ϵp]

Consider this example of a duopoly market. Assume that the aggregate market demand has been estimated to be: QD = 450 − P The supply function is represented by constant marginal cost MC = 30. Find the Cournot pricing strategy solution.

Rearranging the aggregate demand function in terms of price, we get: P = 450 − QD = 450 − q1 − q2, and MC = 30 Total revenue for each of the two firms is found by multiplying price and quantity: TR1=Pq1=(450−q1−q2)q1=450q1−q1^2−q1q2 TR2=Pq2=(450−q1−q2)q2=450q2−q2q1−q2^2 MRi is the first derivative of TR with respect to qi: MR1 = 450 - 2q1 - q1 = 450 - 3q1 MR2 = 450 - q2 - 2q2 = 450 - 3q2 For the profit-maximizing output, set MR = MC, or 450 − 2q1 − q2 = 30 and 450 − q1 − 2q2 = 30 Because q2 = q1 under Cournot's assumption, insert this solution into the demand function and solve as 450 − 3q1 = 30 Therefore, q1 = 140, q2 = 140, and Q = 280. The price is P = 450 − 280 = 170.

Monopoly Regulation

Set price equal to marginal cost. Subsidies will be required if the marginal cost is less than the long-run average cost (LRAC). Nationalization. Government ownership often hinders the monopoly's ability to impose politically unpopular price increases. Authorized monopolies. If the price is set to equal LRAC, investors will earn a normal profit for their level of risk. However, it can be difficult for regulators to determine a realistic LRAC. Franchising monopolies through a competitive bidding process. Examples include retail stores at airports and rail stations.

The Cournot equilibrium differs from the perfectly competitive market equilibrium because the perfectly competitive price will be [...] and the perfectly competitive output will be [...]. In general, non-competitive markets have [...] prices and [...] levels of output in equilibrium when compared with perfect competition. In competition, the equilibrium is reached where price equals [...].

The Cournot equilibrium differs from the perfectly competitive market equilibrium because the perfectly competitive price will be lower and the perfectly competitive output will be higher. In general, non-competitive markets have higher prices and lower levels of output in equilibrium when compared with perfect competition. In competitionterm-36, the equilibrium is reached where price equals marginal cost.

The dominant (or leader) firm in an oligopoly generally is the [...]. Typically, the dominant firm has a lower [...], which makes it unlikely other firms will start a price war. The dominant firm will set the price where its [...]. The total market demand curve will have a [...] slope than for the leader because the leading firm will capture a larger percentage of the total market at [...] prices.

The dominant (or leader) firm generally is the price maker. Typically, the dominant firm has a lower cost structure, which makes it unlikely other firms will start a price war. The dominant firm will set the price where its marginal cost equals its marginal revenue. The total market demand curve will have a steeper slope than for the leader because the leading firm will capture a larger percentage of the total market at lower prices.

The equilibrium quantity in monopolistic market will be [...] than that in a market with perfect competition because...

The equilibrium quantity in monopolistic market will be less than that in a market with perfect competition The economic cost in monopolistic competition includes some cost associated with product differentiation, such as advertising. In perfect competition, there are no costs associated with advertising or marketing because all products are homogeneous

Perfectly Competitive Firm's Short-Run Equilibrium

The firm will always maximize profit at an output level where MR = MC. Recall that in perfect competition, the horizontal demand curve is the marginal revenue and average revenue schedules. By setting level of output q at price point where MR = MC, the firm will maximize profits. Total revenue is equal to P ×q. Total cost is equal to q times the average cost of producing q. The difference between the two areas is economic profit. = Pxq - ACqxq

The [...] is the perfectly competitive firm's supply curve. The firm's demand curve is dictated by the [...]. The basic rule of profit maximization is that [...], as is the case in long-run equilibrium. The firm's demand schedule is the same as the firm's [...]. Given its cost of operation, the only decision the perfectly competitive firm faces is [...]. The answer is the [...] that maximizes its return, and that level is where [...]. The demand curve is [...]. Of course, the firm constantly tries to find ways to lower its cost in the long run.

The long-run marginal cost curve is the perfectly competitive firm's supply curve. The firm's demand curve is dictated by the aggregate market's equilibrium price. The basic rule of profit maximization is that MR = MC, as is the case in long-run equilibrium. The firm's demand schedule is the same as the firm's marginal revenue and average revenue. Given its cost of operation, the only decision the perfectly competitive firm faces is how much to produce. The answer is the level of output that maximizes its return, and that level is where MR = MC. The demand curve is perfectly elastic. Of course, the firm constantly tries to find ways to lower its cost in the long run.

The most distinctive characteristic of oligopoly markets is [...]. Therefore, their pricing decisions are [...].

The most distinctive characteristic of oligopoly markets is small number of firms that dominate the market. There are so few firms in the relevant market that their pricing decisions are interdependent.

The negatively sloped demand curve can be considered a [...] because it shows the highest price a consumer would be willing to pay for each additional unit.

The negatively sloped demand curve can be considered a marginal value curve because it shows the highest price a consumer would be willing to pay for each additional unit.

The oligopolist has no well-defined [...]. That is, there is no way to determine the oligopolist's optimal levels of output and price independent of [...]. However, the oligopolist still has a [...] that determines the optimal level of supply. Therefore, the profit-maximizing rule established earlier is still valid: The level of output that maximizes profit is where [...]. The price to charge is determined by what price consumers are willing to pay for that quantity of the product. Therefore, the equilibrium price comes from the [...], while the output level comes from the relationship between [...].

The oligopolist has no well-defined supply function. That is, there is no way to determine the oligopolist's optimal levels of output and price independent of demand conditions and competitor's strategies. However, the oligopolist still has a cost function that determines the optimal level of supply. Therefore, the profit-maximizing rule established earlier is still valid: The level of output that maximizes profit is where MR = MC. The price to charge is determined by what price consumers are willing to pay for that quantity of the product. Therefore, the equilibrium price comes from the demand curve, while the output level comes from the relationship between marginal revenue and marginal cost.

Under a Nash equilibrium, the pricing strategy is set when [...]. Each firm does the best it can given the [...]. This approach assumes each firm is acting [...] without price collusion. The resulting market equilibrium may [...] the total profits for all firms.

Under a Nash equilibrium, the pricing strategy is set when no firm has an incentive to change. Each firm does the best it can given the reaction of its rivals. This approach assumes each firm is acting in their own best interest without price collusion. The resulting market equilibrium may not maximize the total profits for all firms.

Under the Cournot assumption, each firm determines its profit-maximizing production level assuming all the other firms will [...]. In the long run, the equilibrium output and price are [...].

Under the Cournot assumption, each firm determines its profit-maximizing production level assuming all the other firms will not change their output. In the long run, the equilibrium output and price are stable.

first degree price discrimination

charging each individual customer a different price based on their willingness to pay

second degree price discrimination

practice of charging different prices per unit for different quantities of the same good or service

third degree price discrimination

practice of dividing consumers into two or more groups with separate demand curves and charging different prices to each group