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competitive market

a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker

average revenue

total revenue divided by the quantity sold

marginal revenue

the change in total revenue from an additional unit sold

sunk cost

a cost that has already been committed and cannot be recovered


a firm that is the sole seller of a product without close substitutes

natural monopoly

a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms

price discrimination

the business practice of selling the same good at different prices to different customers


a market structure in which only a few sellers offer similar or identical products

monopolistic competition

a market structure in which many firms sell products that are similar but not identical


an agreement among firms in a market about quantities to produce or prices to charge


a group of firms acting in unison

Nash equilibrium

a situation in which economic participants interacting with one another each choose their best strategy given the strategies that all the others have chosen

game theory

the study of how people behave in strategic situations

prisoners' dilemma

a particular "game" between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial

dominant strategy

a strategy that is best for a player in a game regardless of the strategies chosen by the other players

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