Perfect competition, monopoly, monopolistic competition, and oligopoly and how each affects pricing and output. Front: the term or market structure. Back: a plain-language definition.
35 cards · basic cards · AI-written, checked twice. Edit anything.
- Why does perfect competition have many firms?
Show answer
No single firm can influence market price; competition from many rivals prevents any firm from earning abnormal profits.- Homogeneous products in perfect competition
Show answer
All firms sell identical products; buyers see no reason to prefer one seller over another.- Price taker
Show answer
A firm that accepts the market price and cannot influence it; the firm's output is too small relative to total market output.- How do perfectly competitive firms set prices?
Show answer
They accept the market price determined by aggregate supply and demand; individual firms cannot raise price above market or they lose all sales.- Free entry and exit in perfect competition
Show answer
Firms can easily enter or leave the market without legal or financial barriers; this eliminates long-run economic profit.- Long-run economic profit in perfect competition
Show answer
Economic profit falls to zero as new firms enter in response to profit; only normal profit remains.- Allocative efficiency in perfect competition
Show answer
Price equals marginal cost; resources are allocated to their highest-valued uses and no deadweight loss exists.- Productive efficiency in perfect competition
Show answer
Firms produce where average total cost is minimized; there is no waste from excess capacity.- Barriers to entry in monopoly
Show answer
Legal, technological, or economic obstacles that prevent new firms from entering; examples include patents, licenses, and control of essential resources.- Price maker
Show answer
A firm with market power that can set price above marginal cost; the firm faces a downward-sloping demand curve.- How does a monopoly determine its price?
Show answer
It produces where marginal revenue equals marginal cost, then charges the highest price consumers will pay at that quantity.- Why does a monopoly restrict output?
Show answer
To maintain high prices and maximize profit; the monopoly produces less than the socially optimal quantity.- Can a monopoly earn economic profit in the long run?
Show answer
Yes; barriers to entry prevent competition, so the monopoly can sustain abnormal profit indefinitely.- Deadweight loss in monopoly
Show answer
The loss of economic efficiency because the monopoly produces less than the socially optimal quantity; some mutually beneficial transactions do not occur.- Is a monopoly allocatively efficient?
Show answer
No; price exceeds marginal cost, so the marginal benefit to consumers exceeds the marginal cost to society, and resources are underallocated.
FlashKeepers