Economics

Average Total Cost

In economics, average total cost (ATC) equals total fixed and variable costs divided by total units produced. Average total cost curve is typically U-shaped i.e. it decreases, bottoms out and then rises.

Game Theory

In economics, game theory is the study of interaction between different participants in a market. The objective of game theory is to identify the optimal strategy for each participant.

Prisoners' Dilemma

A prisoners’ dilemma refers to a type of economic game in which the Nash equilibrium is such that both players are worse off even though they both select their optimal strategies.

Nash Equilibrium

Nash equilibrium is an outcome of a game such that no player can gain by unilaterally changing its strategy. It is achieved when each player adopts the optimal strategy given the strategy of the other player.

Dominated Strategy

A dominated strategy is a strategy which doesn’t result in the optimal outcome in any case. A strategy is dominated if there always exist a course of action which results in higher payoff no matter what the opponent does.

Dominant Strategy

In game theory, a dominant strategy is the course of action that results in the highest payoff for a player regardless of what the other player does.

Payoff Matrix

In game theory, a payoff matrix is a table in which strategies of one player are listed in rows and those of the other player in columns and the cells show payoffs to each player such that the payoff of the row player is listed first.

Kinked Demand Curve Model

The kinked-demand curve model (also called Sweezy model) posits that price rigidity exists in an oligopoly because an oligopolistic firm faces a kinked demand curve, a demand curve in which the segment above the market price is relatively more elastic than the segment below it.

Monopolistic Competition

Monopolistic competition is a type of imperfect competition market structure in which a large number of firms produce differentiated products and there are no barriers to entry.

Concentration Ratio

Concentration ratio (also called n-firm concentration ratio) measures the market share of top n firms in an industry. Four-firm concentration ratio which is the sum of market share of top four firms, is the most common concentration ratio. It is close to 0 in case of perfect competition and close to 1 in monopoly or oligopoly.