U4: Imperfect Competition

imperfectly competitive market

- less is produced than is socially optimal

perfect competition

- many firms - undifferentiated goods - many buyers and sellers - no barriers to entry/exit -pistachios, corn, pinapples

prisoner's dilemma

A situation in which two (or more) actors cannot agree to cooperate for fear that the other will find its interest best served by reneging on an agreement

In an imperfectly competitive market, which of the following is true about the quantity produced?

MB > MC An imperfectly competitive firm's marginal revenue curve is less than its demand. The demand for a good represents the price, and marginal benefit, for a given quantity. That means when the imperfectly competitive firm chooses the quantity where marginal revenue equals marginal cost and then sets the price of that good equal to the price people are willing to pay, the marginal benefit of that quantity is greater than the marginal cost of that quantity.

allocative efficiency

MC = D MB>MC

productively efficient

MC=ATC, minimum point of average total cost curve

monopoly total revenue curve

P*Q

monopoly demand curve

S=MC

resource market

a market in which households sell and firms buy resources or the services of resources: - farmland - capital good - robots

monopolistic competition

a market structure in which many companies sell products that are similar but not identical - perfect information - branded computers - name brands (lululemon vs gymshark) - closer to perfect competition than monopoly - low entry and exit barriers - similar but differentiated goods. total economic profit: (price on demand curve - price on ATC curve) * Q why it's hard for monopolistic competition to make money: - more substitutes produced of the item and competitors stealing demand - no economic profit in long run

oligopoly

a market structure in which only very few sellers offer similar or identical products, many buyers duopoly: -boeing and airbus - coke and pepsi collusion: (usually) illegal cooperation or conspiracy between oligopolies, conduct in which rival firms cooperate with each other over time to raise prices above competitive levels through coordinated action cartels: group of firms that conspire to reach an agreement over such conduct by explicitly communicating with each other --> try to act as monopoly

monopsony

a market structure in which there is only a single buyer of a good, service, or resource

nash equilibrium

a stable state of a system that involves several interacting participants in which no participant can gain by a change of strategy as long as all the other participants remain unchanged

dominant strategy

a strategy that is best for a player in a game regardless of the strategies chosen by the other players

payoff matrix

a table that shows the payoffs that each firm earns from every combination of strategies by the firms

natural monopoly

an industry in which one firm can achieve economies of scale over the entire range of market supply, average total cost is decreasing at every quantity demanded

duopoly

an oligopoly consisting of only two firms

cartels

combinations of corporations that control an entire industry

excess capacity

exists when a firm produces less than its minimum efficient scale. excess capacity means that the firm can lower costs by expanding output

product market

market for something people will consume: - services - shirts - cars

monopoly

market in which there are many buyers but only one seller - price setter - insurmountable barriers (especially to entry) - utility providers, telecom providers - rational place to produce is where MC = MR, P > MC - monopolist operates on the elastic portion of their demand curve - neither productively or allocatively efficient - low differentiation

price discrimination

the business practice of selling the same good at different prices to different customers - producer surplus is the area underneath the demand curve and above average total cost represented by the yellow shaded area - total revenue is entire area beneath the demand curve and above the marginal cost curve represents total revenue when this producer can perfectly price discriminate - produces the quantity where marginal revenue equals marginal cost and that quantity is also the quantity where price equals marginal cost

excess capacity

the difference between ideal (optimum) output and the output actually attained in the long-run

game theory

the study of how people behave in strategic situations