KEY CONCEPTS

Page 245

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.

Question

monopoly
market power
barriers to entry
economies of scale
rent seeking
x-inefficiency
price discrimination
perfect (first-degree) price discrimination
second-degree price discrimination
rate of return regulation
price caps
antitrust law
third-degree price discrimination
natural monopoly
marginal cost pricing rule
average cost pricing rule
concentration ratio
Herfindahl–Hirschman index (HHI)
contestable markets
Charging different groups of people different prices based on varying elasticities of demand.
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.
Maximum price at which a regulated firm can sell its product. They are often flexible enough to allow for changing cost conditions.
An industry exhibiting large economies of scale such that the minimum efficient scale of operations is roughly equal to market demand.
Laws designed to maintain competition and prevent monopolies from developing.
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. Examples include spending on corporate jets, lavish travel, and other nonessential perks.
Charging each customer the maximum price each is willing to pay, thereby expropriating all consumer surplus.
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.
Markets that look monopolistic, but where entry costs are so low that the sheer threat of entry keeps prices low.
A one-firm industry with no close product substitutes and with substantial barriers to entry.
A firm’s ability to set prices for goods and services in a market.
Resources expended to protect a monopoly position. These are used for such activities as lobbying, extending patents, and restricting the number of licenses permitted.
Charging different customers different prices based on the quantities of the product they purchase.
Charging different consumer groups different prices for the same product.
A way of measuring industry concentration, equal to the sum of the squares of market shares for all firms in the industry.
Permits product pricing that allows the firm to earn a normal return on capital invested in the firm.
Regulators would prefer to have natural monopolists price where P = MC, but this would result in losses (long term) because ATC > MC.
As the firm expands in size, average total cost declines.
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