# Shared Flashcard Set

## Details

Micro Test 3
micro
19
Economics
04/10/2012

Term
 When do we have a natural monopoly?
Definition
 When the LAC curve is declining throughout. This makes it cheapest for a single firm to serve the entire industry.
Term
 optimality condition for a monopolist
Definition
 MR = MC
Term
 arbitrage
Definition
 the purchase of something for costless risk-free resale at a higher price.
Term
 X-inefficiency
Definition
 a condition in which a firm fails to obtain maximum output from a given combination of inputs.
Term
 Pivotal difference between monopolists and perfect competitors:
Definition
 MR < P for monopolists.MR = P for perfect competitor.
Term
 dominant strategy
Definition
 the strategy in a game that produces better results irrespective of the strategy chosen by one's opponent.
Term
 Nash equilibrium
Definition
 One or both players has a dominant strategy. If it's one, the other will choose accordingly, if its both, each will choose their dominant.
Term
 maximin strategy
Definition
 Pick whichever option has the highest minimum payoff.
Term
 Cournot
Definition
 Each firm assumes that its rivals will continue producing at current levels. P = (a-bQ2)-bQ1, MR = (a-bQ2)-2bQ1. So profit maximizing Q1 = [(a-bQ2)-MC]/2b
Term
 reaction function
Definition
 a curve that tells the profit-maximizing level of output for one oligopolist for each amount supplied by another.
Term
 Stackelberg Model
Definition
 One firm knows the other is a Cournot duopolist. P = (a-b[Q2 reaction function]) - bQ1 Simplify, then get MR by doubling slope.Set MR = MC and get Q1Plug Q1 into Q2 reaction function to get
Term
 Bertrand
Definition
 I assume that my opponent will maintain his price. Price is set equal to MC so there are zero profits. Both produce the same amount and sell it for the same price. The same as perfect competition.
Term
 Shared Monopoly
Definition
 Treat it like its a one firm monopoly but then split up output evenly among however many firms there are.
Term
 Chamberlin Model
Definition
 DD - what happens when all firms change price together.dd - the demand curve that a firm will face if it alone changes price.
Term
 Value of marginal product
Definition
 the value, at current market price, of the extra output produced by an additional unit of input.VMP = MR*MPL
Term
 Marginal Revenue Product
Definition
 the amount by which total revenue increases with the employment of an additional unit of input.
Term
 average factor cost
Definition
 another name for the supply curve for an input
Term
 total factor cost
Definition
 the product of the employment level of an input and its average factor cost.
Term
 marginal factor cost
Definition
 the amount by which total factor cost changes with the employment of an additional unit of input.
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