Key Terms

• What is alternative efficiency?

  When society misuses goods and services
• What does arbitrage refer to?

  Profit from price differentials in markets
• How is average total cost calculated?

  Total costs divided by output produced
• What is backward integration?

  A merger with a supplier or customer
• What is a barrier to entry?

  A characteristic making market entry difficult
• What does bounded rationality mean?

  Limited information or processing ability
• What is a cartel?

  An agreement to restrict information flow
• What is competitive tendering?

  A process to increase public sector efficiency
• What is a conglomerate merger?

  A merger in diverse operational areas
• What are constant returns to scale?

  Output changes proportionally to input changes
• What defines a contestable market?

  Low entry and exit costs for firms
• What is corporate social responsibility?

  Actions relating to society and environment
• What is cost-plus pricing?

  A fixed markup added to average cost
• What is derived demand?

  Demand for goods based on production needs
• What are diseconomies of scale?

  Higher costs from increased production scale
• What is a dominant strategy in game theory?

  Best choice independent of others' choices
• What is dynamic efficiency?

  Efficiency considering innovation and progress
• What are economies of scale?

  Lower costs from increased production scale
• What are external economies of scale?

  Cost advantages from industry expansion
• What are financial economies of scale?

  Better borrowing terms for larger firms
• What is a firm?

  An organization producing output with resources
• What is forward integration?

  Merging with a later production process firm
• What is game theory?

  Modeling strategic interactions between firms
• What is hit-and-run entry?

  Entering a market for short-term profits
• What is horizontal integration?

  Merging with firms at the same production stage
• What is a horizontal merger?

  A merger between firms in the same industry
• What is the long-run supply curve under perfect competition?

  Horizontal at the minimum average cost point
• What is the law of diminishing marginal productivity?

  Increased inputs lead to diminishing returns
• What is a limit price?

  The highest price to prevent new entrants
• What are internal economies of scale?

  Cost advantages from a firm's expansion
• What is the long run in economics?

  Period to vary all production inputs
• What are management economies of scale?

  Cost advantages from improved management efficiency
• What is marginal cost?

  The cost of producing an additional unit
• What is marginal revenue?

  Additional revenue from selling one more unit
• What is market structure?

  The model of competition among firms
• What is a maximum wage policy?

  A wage ceiling preventing higher earnings
• What is imperfect competition?

  A market structure with reduced competitiveness
• What is minimum efficient scale?

  Output level with lowest long-run average cost
• What is monopolistic competition?

  A market with monopoly and perfect competition traits
• What is a monopoly?

  Market structure with one seller