Micro Economics week 14 notes
Micro Economics week 14 notes ECON 1001
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This 2 page Class Notes was uploaded by Isabelle Hue on Tuesday April 12, 2016. The Class Notes belongs to ECON 1001 at University of Cincinnati taught by Sourushe Zandvakili in Summer 2015. Since its upload, it has received 21 views. For similar materials see Microeconomics in Business at University of Cincinnati.
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Date Created: 04/12/16
monopolistic competition -A market structure in which many ﬁrms sell a diﬀerentiated product, entry is relatively easy, each ﬁrm has some control over its product price, and there is considerable nonprice competition product diﬀerentiation- A strategy in which one ﬁrm's product is distinguished from competing products by means of its d esign, related services, quality, location, or other attributes (except price). nonprice competition- Competition based on distinguishing one's product by means of product diﬀerentiation and then advertising the distinguished product to consumers. four-ﬁrm concentration ratio- The percentage of total industry sales accounted for by the top four ﬁrms in an industry. herﬁndahl index- A measure of the concentration and competitiveness of an industry; calculated as the sum of the squared percentage market shares of the indi vidual ﬁrms in the industry. excess capacity-Plan resources that are underused when imperfectly competitive ﬁrms produce less output than that associated with achieving minimum average total cost. oligopoly -A <i>market structure</i> in which a few <i>ﬁrms</ i> sell either a <i>standardized</i> or <i>diﬀerentiated product,</ i> into which entry is diﬃcult, in which the ﬁrm has limited control over pro duct <i>price</i> because of <i>mutual interdependence</ i> (except when there is collusion among ﬁrms), and in which there is typic ally <i>nonprice competition</i>. homogeneous oligopoly- An <i>oligopoly</i> in which <i>ﬁrms</ i> produce a <i>standardized product</i>. diﬀerentiated oligopoly -An <i>oligopoly</i> in which <i>ﬁrms</ i> produce a <i>diﬀerentiated product</i>. strategic behavior-Self- interested economic actions that take into account the expected reactions of others. mutual interdependence-A situation in which a change in <i>price</ i> strategy (or in some other strategy) by one <i>ﬁrm</ i> will aﬀect the sales and proﬁts of another ﬁrm (or other ﬁrms). Any ﬁrm t hat makes such a change can expect its rivals to react to the change. interindustry competition- The competition for sales between the products of one <i>industry</ i> and the products of another industry. import competition-The competition that domestic <i>ﬁrms</ i> encounter from the products and <i>services</i> of foreign producers. game theory- The study of how people behave in strategic situations in which individuals must take into account not only their own possible actions but also the po ssible reactions of others. Originally developed to analyze the best ways to play games like poker and chess. collusion-A situation in which <i>ﬁrms</ i> act together and in agreement (collude) to ﬁx <i>prices,</ i> divide a market, or otherwise restrict competition. kinked-demand curve- A <i>demand curve</ i> that has a ﬂatter slope above the current <i>price</ i> than below the current price. Applies to a <i>noncollusive oligopoly</ i> ﬁrm if its rivals will match any price decrease but ignore any price increa se. price war- Successive, competitive, and continued decreases in the <i>prices</ i> charged by <i>ﬁrms</i> in an oligopolistic <i>industry</ i>. At each stage of the price war, one <i>ﬁrm</ i> lowers its price below its rivals' price, hoping to increase its sales and re venues at its rivals' expense. The war ends when the price decreases ceas e. cartel-A formal agreement among <i>ﬁrms</ i> (or countries) in an <i>industry</i> to set the <i>price</ i> of a product and establish the outputs of the individual ﬁrms (or countrie s) or to divide the market for the product geographically. price leadership-An informal method that <i>ﬁrms</ i> in an <i>oligopoly</i> may employ to set the <i>price</ i> of their product: One ﬁrm (the leader) is the ﬁrst to announce a change i n price, and the other ﬁrms (the followers) soon announce identical or simil ar changes.
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