Microeconomics Chapter 15

These flashcards cover essential concepts from the lecture on competitive markets, including definitions and key economic principles.

Perfectly Competitive Market

A market with many buyers and sellers trading identical products where each is a price taker.

Marginal Revenue (MR)

The change in total revenue from selling one additional unit of output.

Total Revenue (TR)

The total income generated from the sale of goods or services, calculated as price multiplied by quantity (TR = P x Q).

Average Revenue (AR)

The revenue earned per unit sold, calculated as total revenue divided by quantity (AR = TR / Q).

Profit Maximization

The goal of a firm to maximize profit, which is calculated as total revenue (TR) minus total cost (TC).

Shutdown

A short-run decision by a firm to stop production due to market conditions, resulting in quantity produced being zero.

Exit

A long-run decision by a firm to leave the market entirely.

Market Supply Curve

A graphical representation of the total quantity of a good or service that all firms are willing to sell at different prices.

Cost Curve

A graphical representation of the costs a firm incurs at different levels of production.

Fixed Costs (FC)

Costs that do not vary with the level of output produced, such as rent.

Variable Costs (VC)

Costs that change with the level of output produced, such as labor and materials.

Short-Run Supply Decision

A firm's decision-making process regarding production levels based on current market conditions and costs.

Sunk Cost

A cost that has already been incurred and cannot be recovered. Sunk costs should not be considered in future decisions.

Long-Run Average Total Cost (LRATC)

The lowest amount of average total cost achieved when a firm can change all inputs.

Economic Profit

Profit calculated as total revenue minus total costs, including both explicit and implicit costs.

Zero-Profit Condition

A situation in long-run equilibrium where firms cover all costs, resulting in zero economic profit.

Price Taker

A firm that must accept the market price for its product because it is too small to influence the market.

Price Elasticity of Supply

The responsiveness of the quantity supplied to a change in price.

Market Equilibrium

A situation where supply and demand are balanced, and the market price stabilizes.

Marginal Cost (MC)

The additional cost incurred by producing one more unit of a good or service.

Long-Run Supply Curve

The supply curve that shows the relationship between price and quantity supplied when all factors of production are variable.

Entry and Exit in the Market

The process where firms enter a market when profits are high and exit when they incur losses.

Competitive Equilibrium

A state where all firms are maximizing profits and no firm has the incentive to enter or exit the market.

Short-Run Market Supply Curve

The aggregated supply curve of all firms in the market under fixed conditions.

Long-Run Decision Making

Decisions made by firms regarding entry or exit from the market based on long-term profitability.

Total Surplus

The total benefit to consumers and producers, calculated as the difference between what consumers are willing to pay and what producers are willing to accept.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision.

Demand Shift

A change in the market demand curve due to factors like consumer preferences or income.

Average Total Cost (ATC)

Total cost divided by the quantity of output produced.

Perfectly Elastic Supply

A situation where the supply curve is horizontal, indicating that price remains constant regardless of quantity.

Profit (or Loss) Area

The region on a graph where the firm's total revenue exceeds (or is less than) its total costs.

Short-Run Decisions

Choices made by firms based on current market conditions and fixed inputs.

Equilibrium Price

The price at which the quantity of a good demanded by consumers equals the quantity supplied by producers.

Cost Curves Intersection

The point on a graph where the marginal cost curve intersects the average total cost curve, indicating the efficient scale.

Diminishing Returns

A decrease in the additional output per unit of input as the quantity of input increases.

Free Market

A market where prices are determined by unrestricted competition between privately owned businesses.

Market Dynamics

Changes and movements within a market as firms enter or exit and as prices fluctuate.

Short-Run Profit Maximization

The strategy of producing at a level where marginal cost is equal to marginal revenue.

P = MC = ATC

The condition in long-run equilibrium for perfectly competitive firms where price equals marginal cost and average total cost.

Economic Efficiency

A situation achieved when resources are allocated in a way that maximizes total surplus.

ATC Minimum Point

The lowest point on the average total cost curve, indicating the most efficient production level.

Free Entry and Exit

A condition in which firms can enter or exit the market without barriers.

Positive Economic Profit

When total revenue exceeds total costs, including opportunity costs.