Chapter 8 - 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, 3) no barriers to new firms entering the market
Price taker
A buyer or seller who is unable to affect the market price.
A perfectly competitive firm faces a perfectly elastic demand curve. Can sell more but the price can’t change.
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Profit
TR-TC (Total revenue - total cost)
Average revenue
TR/Number of units sold
Marginal revenue
Change in TR/Change Qty
Maximum profit graph
Profit = (P-ATC) x Q
Profit = (Price- Average total cost) x quantity
Sunk cost
A cost that has already been paid and cannot be recovered.
Shutdown point
The minimum point on a firms average variable cost curve; if the price falls below this point the firm shuts down production in the shortrun.
Economic profit
A firms revenues minus all its cost’s, implicit and explicit.
Economic loss
The situation in which a firms total revenue is less than its total cost, including all implicit costs.
Long run supply curve
A curve showing the relationship in the long run between market price and the quantity supplied.
Productive efficiency
When a good or service is produced using the least amount of resources.
Allocative efficiency
When production reflects consumer preferences’ in particular every good or service is produced up to a point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.
