Market Structures

Barriers to entry are obstacles that make it difficult for new firms to enter a market and compete with existing firms.

The break-even point is the output level where total revenue equals total cost, resulting in zero economic profit.

A cartel is a group of firms that collude to restrict competition and increase profits by acting as a single monopolist.

Collusion is an agreement between firms in a market to cooperate rather than compete, in order to limit competition and increase profits.

A dominant strategy is a strategy that results in the highest payoff for a player regardless of the strategies chosen by other players.

Excess capacity occurs when a firm produces less than the quantity that minimizes average total cost.

Game theory is a framework for analyzing strategic interactions where the outcome for each participant depends on the actions of others.

Long-run equilibrium in perfect competition occurs when firms earn zero economic profit, with price equal to minimum average total cost.

Marginal revenue is the additional revenue a firm earns from selling one more unit of output.

Monopolistic competition is a market structure with many firms selling differentiated products and facing low barriers to entry.

A monopoly is a market structure with a single seller producing a unique product with no close substitutes and significant barriers to entry.

Nash Equilibrium is a stable state of a game where no player can improve their payoff by unilaterally changing their strategy.

A natural monopoly occurs when a single firm can produce the entire market output at a lower average total cost than multiple firms could.

An oligopoly is a market structure dominated by a small number of large interdependent firms.

Perfect competition is a market structure with many small firms, identical products, free entry and exit, and perfect information.

Price discrimination is the practice of charging different prices to different consumers for the same product based on their willingness to pay.

A price maker is a firm that has the ability to set its own price rather than accept the market price as given.

A price taker is a firm that must accept the market price as given and cannot influence it through its own output decisions.

The prisoner's dilemma is a game theory scenario where two rational individuals acting in their own self-interest do not produce the optimal outcome for either.

Product differentiation is the process by which firms make their products distinct from those of competitors through features, branding, or quality.

Profit is maximized when marginal revenue equals marginal cost.

The shutdown point is the output level where price equals minimum average variable cost.

The kinked demand curve is an oligopoly model where rivals match price cuts but ignore price hikes, creating a kink at the current price and sticky (rigid) prices.

For a single-price monopolist with a straight-line demand curve, the marginal revenue curve has the same intercept but twice the slope, hitting the quantity axis at half the demand's intercept.

A monopoly is allocatively inefficient because it produces where price exceeds marginal cost (P > MC), underproducing relative to the efficient level and creating deadweight loss.

The Stackelberg model is an oligopoly model where a leader firm sets output first and a follower firm then chooses its output in response.

Cournot competition is an oligopoly model where firms simultaneously choose how much quantity to produce, and the combined output sets the market price.

Bertrand competition is an oligopoly model where firms simultaneously set prices, and consumers buy from whoever charges less.