Microeconomics: Market Structures Flashcards

A firm in perfect competition is a price taker because:

Answer: Its individual output is too small to affect market price

Each perfectly competitive firm supplies such a tiny fraction of total market output that it cannot influence the equilibrium price.

Which of the following would most likely result in a market transitioning from competition toward monopoly?

Answer: Significant network effects that favor a single dominant firm

Network effects increase a product's value as more people use it, giving a large incumbent a self-reinforcing advantage that can lead to monopoly.

Third-degree price discrimination occurs when a firm charges different prices based on:

Answer: Identifiable groups with different price elasticities of demand

Third-degree price discrimination segments consumers into identifiable groups (e.g., students, seniors) with different demand elasticities and charges each group a different price.

In the long run, which market structure is the ONLY one guaranteed to produce where P = MC = minimum ATC?

Answer: Perfect competition

In long-run competitive equilibrium, free entry drives price to minimum average total cost and profit to zero, achieving both allocative and productive efficiency.

A dominant strategy in game theory is one that:

Answer: Is optimal for a player regardless of what the rival does

A dominant strategy yields the highest payoff for a player no matter which strategy the opposing player chooses.

When a monopolist maximizes profit, which condition holds?

Answer: MR = MC

Like all profit-maximizing firms, a monopolist produces where marginal revenue equals marginal cost.

Compared to monopolistic competition, perfect competition leads to:

Answer: Lower prices and no excess capacity in the long run

Perfect competition eliminates excess capacity and sets P = minimum ATC, yielding lower prices than monopolistic competition where firms operate with unused capacity.