Chapter 12: Firms in Perfectly Competitive Markets Flashcards
perfectly competitive market
a market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market
price taker
a buyer or seller that is unable to affect the market price
profit
total revenue minus total cost
average revenue (AR)
total revenue divided by the quantity of the product sold
marginal revenue (MR)
the change in total revenue from selling one more unit of a product
sunk cost
a cost that has already been paid and cannot be recovered
shutdown point
the minimum point on a firm’s average variable cost curve; if the price falls below this point, the firm shuts down production in the short run
economic profit
a firm’s revenues minus all its costs, implicit and explicit
economic loss
the situation in which a firm’s total revenue is less than its total cost, including all implicit costs
long-run competitive equilibrium
the situation in which the entry and exit of firms has resulted in the typical firm breaking even
long-run supply curve
a curve that shows the relationship in the long run between market price and the quantity supplied
productive efficiency
the situation in which a good or service is produced at the lowest possible cost
allocative efficiency
a state of the economy in which production represents consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it
