Unit 8: Perfect Competition Flashcards
Market Structure
Important features of a market, such as the number of firms, product uniformity across firms, firms’ ease of entry and exit, and forms of competition
Perfect Competition
A market structure with many fully informed buyers and sellers of a standardized product and no obstacles to entry or exit of firms in the long run
Commodity
A standardized product, a product that does not differ across producers, such as bushels or wheat or an ounce of gold
Price Taker
A firm that faces a given market price and whose quantity supplied has no effect on that price; a perfectly competitive firm
Marginal Revenue
The change in total revenue from selling an additional unit; in perfect competition, marginal revenue is also the market price
Average Revenue
Total revenue divided by output, TR/Q; in all market structures, average revenue equals the market price
Golden Rule of Profit Maximization
To maximize profit or minimize loss, a firm should produce the quantity at which marginal revenue equals marginal cost; this rule holds for all market structures
Constant-Cost Industry
An industry that can expand or contract without affecting the long run per-unit cost of production; the long-run industry supply curve is horizontal
Increasing-Cost Industry
An industry that faces higher per-unit production costs as industry output expands In the long run; the long run industry supply curve slopes upward
Producer Efficiency
The condition that exists when market output is produced using the least-cost combination of inputs; minimum average cost in the long run
Allocative Efficiency
The condition that exists when firms produce the output most preferred by consumers; marginal benefit equals marginal cost
Producer Surplus
A bonus for producers in the short run; the amount by which total revenue from production exceeds variable costs
Social Welfare
The overall well-being of people in the economy; maximized when the marginal cost of production equals the marginal benefit to consumers
