Microeconomics Ch 9-12

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Market Structure

answer

The environment whose characteristics influence a firm's pricing and output decisions.

question

Perfect competition

answer

A theory of market structure based on four assumptions: 1) There are many sellers and buyers; 2) The sellers sell a homogeneous good; 3) Buyers and sellers have all relevant information; 4) Entry into, and exit from, the market is easy.

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Price Taker

answer

A seller that does not have the ability to control the price of the product it sells; the seller "takes" the price determined in the market

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Marginal Revenue (MR)

answer

The change in total revenue (TR) that results from selling one additional unit of output (Q).

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Profit Maximization Rule

answer

Profit is maximized by producing the quantity of output at which MR = MC.

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Resource Allocative Efficiency

answer

The situation in which firms produce the quantity of output at which price equals marginal cost: P = MC

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Short-Run (Firm) Supply Curve

answer

The portion of the firm's marginal cost curve that lies above the average variable cost curve.

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Short-Run Market (Industry) Supply Curve

answer

The horizontal sum of all existing firms' short-run supply curves

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Long-Run Competitive Equilibrium

answer

The condition in which P = MC = SRATC = LRATC. Economic profit is zero, firms are producing the quantity of output at which price is equal to marginal cost, and no firm has an incentive to change its plant size.

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Productive Efficiency

answer

The situation in which a firm produces its output at the lowest possible per-unit cost (lowest ATC).

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Long-Run (Industry) Supply (LRS) Curve

answer

A graphic representation of the quantities of output that an industry is prepared to supply at different prices after the entry and exit of firms are completed.

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Constant-Cost Industry

answer

An industry in which average total costs do not change as (industry) output increases or decreases when firms enter or exit the industry, respectively.

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Increasing-Cost Industry

answer

An industry in which average total costs increase as output increases and decrease as output decrease as output decreases when firms enter and exit the industry, respectively.

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Decreasing-Cost Industry

answer

An industry in which average total costs decrease as output increases and increase as output decreases when firms enter and exit the industry, respectively.

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Monopoly

answer

A theory of market structure based on three assumptions" there is one seller, it sells a product that has no close substitutes, and the barriers to entry are extremely high.

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Public Franchise

answer

A firm's government-granted right that permits the firm to provide a particular good or service and that excludes all others from doing so.

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Natural Monopoly

answer

The condition in which economies of scale are so pronounced that only one firm can survive.

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Price Searcher

answer

A seller that has the ability to control, to some degree, the price of the product it sells.

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Deadweight Loss of Monopoly

answer

The net value (the value to buyers over and above the costs to suppliers) of the difference between the competitive quantity of output (where P = MC) and the monopoly quantity of output (where P > MC); the loss due to not producing the competitive quantity of output.

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Rent Seeking

answer

Actions of individuals and groups that spend resources to influence public policy in the hope of redistributing (transferring) income to themselves from others.

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X-Inefficiency

answer

The increase in costs, due to the organizational slack in a monopoly, resulting from the absence of competitive pressure to push costs down to their lowest possible level.

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Price Discrimination

answer

A price structure in which the seller charges different prices for the product it sells and the price differences do not reflect cost differences.

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Perfect Price Discrimination

answer

A price structure in which the seller charges the highest price that each consumer is willing to pay for the product rather than go without it.

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Second-Degree Price Discrimination

answer

A price structure in which the seller charges a uniform price per unit for one specific quantity, a lower price for an additional quantity, and so on.

question

Third-Degree Price Discrimination

answer

A price structure in which the seller charges different prices in different markets or charges different prices to various segments of the buying population.

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Arbitrage

answer

Buying a good at a low price and selling it for a higher price.

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Antitrust Law

answer

Legislation passed for the stated purpose of controlling monopoly power and preserving and promoting competition.

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Trust

answer

A combination of firms that come together to act as a monopolist.

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Herfindahl Index

answer

An index that measures the degree of concentration in an industry, equal to the sum of the squares of the market shares of each firm in the industry.

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Horizontal Merger

answer

A merger between firms that are selling similar products in the same market.

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Vertical Merger

answer

A merger between companies in the same industry but at different stages of the production process.

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Conglomerate Merger

answer

A merger between companies in different industries.

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Network Good

answer

A good whose value increases as the expected number of units sold increases.

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Lock-In Effect

answer

The situation in which a product or technology becomes the standard and is difficult or impossible to dislodge from that role.

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Regulatory Lag

answer

The period between the time that a natural monopoly's costs change and the time that the regulatory agency adjusts prices to account for the change.

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Capture Theory of Regulation

answer

A theory holding that, no matter what the motive is for the initial regulation and the establishment of the regulatory agency, eventually the agency will be captured (controlled) by the special interests of the industry being regulated.

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Public Interest Theory of Regulation

answer

A theory holding that regulators are seeking to do - and will do through regulation - what is in the best interest of the public or society at large.

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Public Choice Theory of Regulation

answer

A theory holding that regulators are seeking to do - and will do through regulation - what is in their best interest (specifically, to enhance their power and the size and budget of the regulatory agencies).

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question

Market Structure

answer

The environment whose characteristics influence a firm's pricing and output decisions.

question

Perfect competition

answer

question

Price Taker

answer

A seller that does not have the ability to control the price of the product it sells; the seller "takes" the price determined in the market

question

Marginal Revenue (MR)

answer

The change in total revenue (TR) that results from selling one additional unit of output (Q).

question

Profit Maximization Rule

answer

Profit is maximized by producing the quantity of output at which MR = MC.

question

Resource Allocative Efficiency

answer

The situation in which firms produce the quantity of output at which price equals marginal cost: P = MC

question

Short-Run (Firm) Supply Curve

answer

The portion of the firm's marginal cost curve that lies above the average variable cost curve.

question

Short-Run Market (Industry) Supply Curve

answer

The horizontal sum of all existing firms' short-run supply curves

question

Long-Run Competitive Equilibrium

answer

question

Productive Efficiency

answer

The situation in which a firm produces its output at the lowest possible per-unit cost (lowest ATC).

question

Long-Run (Industry) Supply (LRS) Curve

answer

A graphic representation of the quantities of output that an industry is prepared to supply at different prices after the entry and exit of firms are completed.

question

Constant-Cost Industry

answer

An industry in which average total costs do not change as (industry) output increases or decreases when firms enter or exit the industry, respectively.

question

Increasing-Cost Industry

answer

An industry in which average total costs increase as output increases and decrease as output decrease as output decreases when firms enter and exit the industry, respectively.

question

Decreasing-Cost Industry

answer

An industry in which average total costs decrease as output increases and increase as output decreases when firms enter and exit the industry, respectively.

question

Monopoly

answer

A theory of market structure based on three assumptions" there is one seller, it sells a product that has no close substitutes, and the barriers to entry are extremely high.

question

Public Franchise

answer

A firm's government-granted right that permits the firm to provide a particular good or service and that excludes all others from doing so.

question

Natural Monopoly

answer

The condition in which economies of scale are so pronounced that only one firm can survive.

question

Price Searcher

answer

A seller that has the ability to control, to some degree, the price of the product it sells.

question

Deadweight Loss of Monopoly

answer

question

Rent Seeking

answer

Actions of individuals and groups that spend resources to influence public policy in the hope of redistributing (transferring) income to themselves from others.

question

X-Inefficiency

answer

The increase in costs, due to the organizational slack in a monopoly, resulting from the absence of competitive pressure to push costs down to their lowest possible level.

question

Price Discrimination

answer

A price structure in which the seller charges different prices for the product it sells and the price differences do not reflect cost differences.

question

Perfect Price Discrimination

answer

A price structure in which the seller charges the highest price that each consumer is willing to pay for the product rather than go without it.

question

Second-Degree Price Discrimination

answer

A price structure in which the seller charges a uniform price per unit for one specific quantity, a lower price for an additional quantity, and so on.

question

Third-Degree Price Discrimination

answer

A price structure in which the seller charges different prices in different markets or charges different prices to various segments of the buying population.

question

Arbitrage

answer

Buying a good at a low price and selling it for a higher price.

question

Antitrust Law

answer

Legislation passed for the stated purpose of controlling monopoly power and preserving and promoting competition.

question

Trust

answer

A combination of firms that come together to act as a monopolist.

question

Herfindahl Index

answer

An index that measures the degree of concentration in an industry, equal to the sum of the squares of the market shares of each firm in the industry.

question

Horizontal Merger

answer

A merger between firms that are selling similar products in the same market.

question

Vertical Merger

answer

A merger between companies in the same industry but at different stages of the production process.

question

Conglomerate Merger

answer

A merger between companies in different industries.

question

Network Good

answer

A good whose value increases as the expected number of units sold increases.

question

Lock-In Effect

answer

The situation in which a product or technology becomes the standard and is difficult or impossible to dislodge from that role.

question

Regulatory Lag

answer

The period between the time that a natural monopoly's costs change and the time that the regulatory agency adjusts prices to account for the change.

question

Capture Theory of Regulation

answer

question

Public Interest Theory of Regulation

answer

A theory holding that regulators are seeking to do - and will do through regulation - what is in the best interest of the public or society at large.

question

Public Choice Theory of Regulation

answer

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Microeconomics Ch 9-12

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