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Why might firms in an oligopoly have an incentive to cheat?

Because individual firms can increase profits by secretly lowering prices or increasing output.

What is allocative efficiency?

Allocative efficiency occurs where price equals marginal cost (P = MC).

Why might large firms with market power benefit consumers?

They may achieve economies of scale and invest heavily in research and development.

A firm has total revenue of $800 and total costs of $650. What is its profit?

$150 abnormal profit.

State the formula for calculating profit.

Profit = Total Revenue (TR) − Total Cost (TC).

If average revenue is $12 and average cost is $12, what type of profit is the firm earning?

Normal profit.

If average revenue is $9 and average cost is $11, what is the firm's situation?

The firm is making losses because AR < AC.

What is oligopoly?

A market structure dominated by a few large firms with interdependence between them.

Why does monopoly create allocative inefficiency?

Because monopolists produce where price is greater than marginal cost (P > MC).

What is a natural monopoly?

A market where one large firm can supply the entire market at a lower average cost than many smaller firms.

What is non-price competition?

Competition through methods other than price, such as advertising, branding, or product quality.

What condition determines profit maximization for a firm?

Profit is maximized where marginal cost (MC) equals marginal revenue (MR).

What is abnormal profit?

When average revenue (AR) is greater than average cost (AC).

What are concentration ratios?

Measures showing the percentage of market share controlled by the largest firms in an industry.

What is normal profit?

When average revenue (AR) equals average cost (AC).

How can governments respond to abuse of market power?

Through regulation, legislation, fines, or government ownership.

What is collusion in an oligopoly?

When firms cooperate to fix prices or output to increase profits.

What is perfect competition?

A market structure with many firms, identical products, free entry and exit, and firms acting as price takers.

Why is perfect competition considered allocatively efficient?

Because firms produce where price equals marginal cost, maximizing social welfare.

What is monopoly?

A market structure where a single firm dominates the market with high barriers to entry.

What is market power?

The ability of a firm to influence price, output, or other market conditions.

What is monopolistic competition?

A market structure with many firms, differentiated products, and relatively free entry and exit.

Why is demand more elastic in monopolistic competition than in monopoly?

Because there are many close substitutes available to consumers.

What is a loss in market structure analysis?

When average revenue (AR) is less than average cost (AC).

Why are firms in perfect competition considered price takers?

Because individual firms are too small to influence the market price.

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