AP Microeconomics Unit 4

achieved when each type of good is produced until the benefit from another unit of the good no longer exceeds the cost of producing another unit (until MB <= MC)

involves efforts by the government to prevent oligopolistic industries from becoming or behaving like monopolies.

total cost divided by quantity of output produced; also known as average cost.

something that protects a monopolist (and allows it to persist and earn economic profits) by preventing other firms from entering the industry.

the market price at which a price-taking firm earns zero profit; the minimum average total cost of such a firm.

a group of producers that agree to restrict output in order to increase prices and their joint profits.

when sellers cooperate to raise their joint profits.

measure of the percentage of industry sales accounted for by the “X” largest firms; for example, the four-firm [blank] or the eight-firm [blank].

a player’s best action regardless of the action taken by the other player.

an oligopoly consisting of only two firms.

when firms in a monopolistically competitive industry produce less than the output at which average total cost is minimized.

When price is equal to average total cost for a monopoly, enforced by the government usually

the study of behavior in situations of interdependence.

shows the relationship between the price of a good and the total output of the industry as a whole; also known as market supply curve.

when the outcome (profit) of each firm depends on the actions of the other firms in the market.

shows how the quantity supplied responds to the price once producers have had time to enter or exit the industry.

the change in total cost generated by producing an additional unit of output

the change in total revenue generated by an additional unit of output.

the result when each player in a game chooses the action that maximizes his or her payoff, given the actions of other players; also called noncooperative equilibrium

when firms act in their own self-interest, ignoring the effects of their actions on each other’s profits

the reward received by a player in a game, such as the profit earned by an oligopolist.

when a monopolist charges each consumer his or her willingness to pay—the maximum that the consumer is willing to pay.

when firms charge different prices to different consumers for the same good.

a change in price and how it impacts a firm/market**

one firm sets its price first, and other firms then follow.

limits the price that a monopolist is allowed to charge.

when tacit collusion breaks down and aggressive price competition causes prices to collapse.

When a consumer/firm has no effect on the market price of the good or service they buy/sell

a game based on two premises: (1) each player has an incentive to choose an action that benefits itself at the other player’s expense; and (2) when both players follow this incentive, both are worse off than if they had acted cooperatively.

an attempt by a firm to convince buyers that its product is different from the products of other firms in the industry.

achieved by an economy if it produces at a point on its production possibilities curve; achieved when firms minimize the average cost of producing their goods

The value of the difference between total revenue and costs

(of a monopoly) when a good is supplied by the government, or by a firm owned by the government, instead of by a monopolist.

A change in quantity and how it impacts a firm/market**

shows how the quantity supplied by an industry depends on the market price, given a fixed number of firms.

when, in a market, quantity supplied equals quantity demanded, given a fixed number of firms.

the price at which a firm ceases production in the short run; equal to minimum average variable cost.

monopolist that charges all consumers the same price.

price where a monopoly is allocatively efficient, enforced by a government usually

when firms limit production and raise prices in a way that raises each other’s profits, even though they have not made any formal agreement.

a strategy that involves playing cooperatively at first, then doing whatever the other player did in the previous period.