Term
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Definition
is a market in which:
■ Many firms sell identical products to many buyers.
■ There are no restrictions on entry into the market.
■ Established firms have no advantage over new ones.
■ Sellers and buyers are well informed about prices.
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Term
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Definition
equals the price of its output
multiplied by the number of units of output sold
(price × quantity). |
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Term
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Definition
____________ is the change in
total revenue that results from a one-unit increase in
the quantity sold. Marginal revenue is calculated by
dividing the change in total revenue by the change in
the quantity sold. |
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Term
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Definition
A _______ is a firm that cannot influence the market price
because its production is an insignificant part of the
total market. |
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Term
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Definition
A firm’s ____________- is the
price and quantity at which it is indifferent between
producing and shutting down. The shutdown point
occurs at the price and the quantity at which average
variable cost is a minimum. |
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Term
short-run market supply curve |
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Definition
The ____________________shows the quantity
supplied by all the firms in the market at each price
when each firm’s plant and the number of firms
remain the same. |
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Term
What is perfect competition? |
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Definition
■ In perfect competition, many firms sell identical
products to many buyers; there are no restrictions
on entry; sellers and buyers are well informed
about prices.
■ A perfectly competitive firm is a price taker.
■ A perfectly competitive firm’s marginal revenue
always equals the market price.
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Term
Keypoint:
What is perfect competition? |
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Definition
■ In perfect competition, many firms sell identical
products to many buyers; there are no restrictions
on entry; sellers and buyers are well informed
about prices.
■ A perfectly competitive firm is a price taker.
■ A perfectly competitive firm’s marginal revenue
always equals the market price.
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Term
Key point:
The firm's Output Decisions |
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Definition
■ The firm produces the output at which marginal
revenue (price) equals marginal cost.
■ In short-run equilibrium, a firm can make an economic
profit, incur an economic loss, or break even.
■ If price is less than minimum average variable cost,
the firm temporarily shuts down.
■ At prices below minimum average variable cost, a
firm’s supply curve runs along the y -axis; at prices
above minimum average variable cost, a firm's supply curve is its marginal curve. |
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Term
Key points:
output, price, and profit in the short run
p. 278-281 |
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Definition
■ The market supply curve shows the sum of the
quantities supplied by each firm at each price.
■ Market demand and market supply determine price.
■ A firm might make a positive economic profit, a
zero economic profit, or incur an economic loss.
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Term
Key point:
Output, Price, and Profit in the Long Run
(pp. 281 – 283 ) |
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Definition
■ Economic profit induces entry and economic loss
induces exit.
■ Entry increases supply and lowers price and
profit. Exit decreases supply and raises price and
profit.
■ In long-run equilibrium, economic profit is zero.
There is no entry or exit.
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Term
Key point:
Changes in Demand and Supply as Technology
Advances
(pp. 284 – 287 ) |
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Definition
■ A permanent increase in demand leads to a
larger market output and a larger number of
firms. A permanent decrease in demand leads to
a smaller market output and a smaller number
of firms.
■ New technologies lower the cost of production,
increase supply, and in the long run
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Term
Key point:
Competition and Efficiency
(pp. 288 – 289 ) |
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Definition
■ Resources are used efficiently when we produce
goods and services in the quantities that people
value most highly.
■ Perfect competition achieves an efficient allocation.
In long-run equilibrium, consumers pay the
lowest possible price and marginal social benefit
equals marginal social cost.
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