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COLLUSION AND EFFICIENCY: Colluding oligopolistic firms generally produce less output and charge a higher price than would be the case for a perfectly competitive industry. In essence, colluding oligopolistic firms function just as if a market were monopolized. The price charged by the colluding firms is higher than the marginal cost of production. The equality between price and marginal cost is THE key indication that resources are allocated efficiently and that society's resources are being used to generate the highest possible level of satisfaction. Because the colluding firms control the market like a monopoly, the market demand curve is THE demand curve for the colluding firms's. With a negatively-sloped demand curve, price is greater than marginal revenue. And because a profit-maximizing firm equates marginal revenue with marginal cost, the price charged by the colluding firms when the maximize industry profit is greater than marginal cost.
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FREE-RIDER PROBLEM A problem underlying the provision of public goods that occurs when a person consumes or benefits from a good without making payment. The free-rider problem is the primary reason that public goods are produced by governments. Because public goods are characterized by the inability to exclude nonpayers, once a public good is produced anyone, everyone, can consume without making payment, that is, get a "free ride." Voluntary payments like those occurring in markets will not provide enough revenue to pay production costs. The only way to finance public goods is to force free-riders, and everyone else, to pay through government taxes. The free-rider problem also applies to common-property goods.
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GRAY SKITTERY
[What's This?]
Today, you are likely to spend a great deal of time at a garage sale hoping to buy either a coffee cup commemorating the first day of spring or a printer that works with your stockpile of ink cartridges. Be on the lookout for celebrities who speak directly to you through your television.
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This isn't me! What am I?
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Parker Brothers, the folks who produce the Monopoly board game, prints more Monopoly money each year than real currency printed by the U.S. government.
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"Most of the things worth doing in the world had been declared impossible before they were done." -- Louis D. Brandeis, Supreme Court Justice
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WAPM
Weak Axiom of Profit Maximization
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