A firm that satisfies the following conditions:
- It is the only supplier in the market.
- There is no close substitute to the output good.
- There is no threat of competition.
A firm with such extreme economies of scale that once it begins creating a
certain level of output, it can produce more at a lower cost than any smaller
competitor. Generally characterized by a declining average cost curve.
Economies of scale
Savings acquired through increases in quantity produced. Oftentimes, large
firms in industries with high fixed costs can take advantage of savings that
smaller firms cannot.
An agent who takes prices as given. For instance, a firm who faces a perfectly
flat demand curve has no choice but to
sell at one price. This firm is a price taker.
A market operates under perfect competition if it satisfies the following
- Numerous firms
- Freedom of entry and exit
- Homogeneous output
- Perfect information
The dollar amount of social surplus that goes unrealized as compared to the
socially optimal solution.
The opposite of a price taker; a price setter has the power to set prices.
For instance, a firm who faces a downward sloping demand
curve can choose price.
Describes points at which social surplus is maximized, social surplus being the
combined utilities of the firms and the public.
A market dominated by a small number of firms. At least several of these firms
are large enough to influence the market price.
A market dominated by two firms. Both firms are large enough to influence the
A model of duopolies under which two firms simultaneously choose the
quantity to produce.
A model of duopolies under which two firms choose the quantity to produce
with one firm choosing before the other in an observable manner.
A model of duopolies under which two firms simultaneously choose the price
for a good.
A small number of independent firms who act together to set monopoly prices and
make monopoly profits.
Information known to everyone.
A reaction curve is a function that takes as input the moves of the other
players and returns the optimal move given the other players' moves.
An equilibrium in which all players are playing their best responses to everyone
else's best response.