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Barriers to Entry
Anything that artificially prevents the entry of firms into an industry.
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Pure Monopoly & Characteristics
One firm; unique product; blocked entry; single firm has considerable control over price; nonprice competition may or may not be found.
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MR=MC rule
The principle that a firm will maximize its profit by producing the output at which MR and MC are equal.
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MR=MC rule
The principle that a firm will minimize its losses by producing the output at which MR and MC are equal.
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Monopolistic Competition & Characteristics
Many firms; differentiated products; relatively easy entry; firms have some control over prices; considerable nonprice competition.
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Excess Capacity
Plant resources that are underused when imperfectly competitive firms produce less output than that associated with achieving minimum AVC.
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Non-Price Competition
Distinguishing products by product differentiation and then advertising the distinguished product to consumers.
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Oligopoly & Characteristics
Few firms; sells either standardized or differentiated products; entry is difficult; the firm has limited control over price b/c of mutual interdependence; there is typically nonprice competition.
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Concentration Ratios
The percentage of the total sales of an industry made by the four largest sellers in the industry.
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Price Leadership
An informal method that firms in an oligopoly may employ to set the price of their product.
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Price Leadership method
One firm (the leader) announce a change in price and the other firms (the followers) soon announce identical or similar changes.
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Collusion
Firms act together and in agreement (collude) to fix prices, divide a market, or otherwise restrict competition.
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Kinked Demand Curve
The demand curve for a noncollusive oligopolist; based on the assumption that rivals will match a price decrease & ignore a price increase.
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Game Theory
Analyzing the behavior of oligopolists that uses the theory of strategy associated with games such as chess and bridge.
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Cartel
A formal agreement among firms in an industry to set the price of a product and establish the outputs of the individual firms or to divide the market for the product geographically.
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Tactic Understanding
- An unspoken, unwritten agreement by an oligopolist to set prices and outputs that does not involve outright collusion.
- Ex. price leadership
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Merger
Combining two firms into a single firm.
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Derived Demand
The demand for a resource that depends on the demand for the products it helps to produce.
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Wage Rate
The price paid for the use of services of labor per unit of time (per hr, day, and so on).
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Monoposonist
A market structure in which there is only a single buyer of a good, service, or resource.
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Craft Union
Limits its membership to workers with a particular skill (craft).
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MRC
Marginal Resource Cost
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Marginal Resource Cost
The amount the total cost of employing a resource increases when a firm employs 1 additional unit of the resource; change in TC/change in quantity
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MRP
Marginal Revenue Product
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Marginal Revenue Product
The change in a firms TR when it employs 1 additional unit of a resource; change in TR/ change in quantity
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Exclusive Unionism
Restricting the supply of skilled union labor to increase the wages received by union members; typically employed by a craft union.
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Inclusive Unionism
The practice of a labor union of including as members all workers employed in the industry.
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Bilateral Monopoly
A single seller (monopoly) and a single buyer (monopsony).
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Occupational Licensing
Laws that require that a worker satisfy certain specified requirements and obtain a license from a licensing board before engaging in a particular occupation.
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Wage Differentials
The difference between the wage received by one worker and that received by another worker.
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Compensating Differences
Differences in the wages received by workers in different jobs to compensate for nonmonetary differences in the jobs.
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Noncompeting Groups
Workers who do not compete with one another for employment because the skills and training are substantially different from those other workers.
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Human Capital
The knowledge and skills that make a person productive.
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