Perfect Competition and Firm Behavior

Flashcards covering key concepts related to perfectly competitive firms, their supply behavior, and conditions for profit maximization.

Perfectly Competitive Firms

Firms in a market where they are price takers and have no control over the market price.

Marginal Cost (MC) Curve

Represents the supply curve for a producer in a competitive market, indicating the relationship between the cost and the quantity produced.

Shutdown Point

The price level below which a firm will not supply any output because it does not cover variable costs.

Average Total Cost (ATC)

The total cost per unit produced, consisting of both fixed and variable costs.

Average Variable Cost (AVC)

The variable cost per unit produced; essential for determining the shutdown point.

Profit Maximization

The process by which a firm determines the price and output level that returns the greatest profit.

Marginal Revenue (MR)

The additional revenue generated from selling one more unit of a product, equal to price (P) in a competitive market.

Elasticity of Supply

Measures how much the quantity supplied responds to a change in price.