chapter 16 Flashcards
the ability to control, or at least affect, the terms and conditions of a market exchange
market power
a market for the exchange of identical units of a good or service, in which there are numerous small sellers and buyers, all of whom have perfect information
perfect competition
a seller that has no market power to set price. Price is determined solely by the interaction of market supply and market demand
price taker
the total amount of money received by a seller, equal to price times quantity sold
total revenues
the difference between total revenues and accounting costs
accounting profits
the difference between total revenues and economic costs
economic profits
the additional revenue obtained by selling one more unit. In a perfectly competitive market, marginal revenue equals price
marginal revenue
a seller should increase production up to the point where MR = MC. As MR = P under perfect competition, we can also define the profit-maximizing solution by setting P = MC
profit maximization (under perfect competition)
the market equilibrium in a perfectly competitive market in which the economic profits of each individual seller are zero, and there is no incentive for entry or exit
perfectly competitive market equilibrium
an economic profit of zero, where total revenues equal total economic costs, including opportunity costs
normal profit
an expenditure that was incurred or committed to in the past and is irreversible in the short run
sunk cost
various theories that assert that firms often fail to maximize profits because the day-to-day operations of firms are run by managers that tend to focus on their own interests or on other business goals rather than profit maximization
managerial theories of firm behavior
a condition that exists when economic developments depend on initial conditions and past events—that is, when “history matters”
path dependence
an assessment of the performance of a business according to social and environmental as well as financial performance
triple bottom line
