Match each of the terms on the left with its definition on the right. Click on the term first and then click on the matching definition. As you match them correctly they will move to the bottom of the activity.
monopoly market power barriers to entry economies of scale rent seeking x-inefficiency price discrimination perfect (first-degree) price second-degree price discrimination third-degree price discrimination natural monopoly marginal cost pricing rule average cost pricing rule rate of return regulation price caps antitrust law concentration ratio Herfindahl-Hirschman index (HHI) contestable markets | As a firm’s output increases, its LRATC tends to decline. This results from specialization of labor and management, and potentially a better use of capital and complementary production techniques Permits product pricing that allows the firm to earn a normal return on capital invested in the firm Resources expended to protect a monopoly position. These are used for such activities as lobbying, extending patents, and restricting the number of licenses permitted Any obstacle that makes it more difficult for a firm to enter an industry, and includes control of a key resource, prohibitive fixed costs, and government protection A way of measuring industry concentration, equal to the sum of the squares of market shares for all firms in the industry An industry exhibiting large economies of scale such that the minimum efficient scale of operations is roughly equal to market demand Charging different customers different prices based on the quantities of the product they purchase Charging different consumer groups different prices for the same product Requires a regulated monopolist to produce and sell output where price equals average total cost. This permits the regulated monopolist to earn a normal return on investment over the long term and therefore remain in business Charging each customer the maximum price each is willing to pay, thereby expropriating all consumer surplus Markets that look monopolistic but where entry costs are so low that the sheer threat of entry keeps prices low Laws designed to maintain competition and prevent monopolies from developing Maximum price at which a regulated firm can sell its product. They are often flexible enough to allow for changing cost conditions The share of industry shipments or sales accounted for by the top four or eight firms Protected from competitive pressures, monopolies do not have to act efficiently. Spending on corporate jets, travel, and other perks of business represents x-inefficiency A firm’s ability to set prices for goods and services in a market A one-firm industry with no close product substitutes and with substantial barriers to entry Charging different groups of people different prices based on varying elasticities of demand Regulators would prefer to have natural monopolists price where P = MC, but this would result in losses (long term) because ATC > MC. Thus, regulators often must use an average cost pricing rule |