Vocab - AP Micro

What defines a price-taking firm?

A firm whose actions have no effect on the market price of the good or service it sells.

What is a price-taking consumer?

A consumer whose actions have no effect on the market price of the good or service he or she buys.

What characterizes a perfectly competitive market?

All market participants are price-takers.

What is a perfectly competitive industry?

An industry in which firms are price-takers.

How is a firm's market share defined?

The fraction of the total industry output accounted for by that firm’s output.

What is a standardized product also known as?

A commodity, when consumers regard the products of different firms as the same good.

What does it mean for an industry to have free entry and exit?

New firms can easily enter the industry and existing firms can easily leave the industry.

What is a monopolist?

The only producer of a good that has no close substitutes.

What is a natural monopoly?

Exists when economies of scale provide a large cost advantage to a single firm that produces all of an industry’s output.

What does a patent provide?

A temporary monopoly in the use or sale of an invention.

What is the purpose of a copyright?

To give the creator of a literary or artistic work the sole right to profit from that work for a specified period of time.

What defines an oligopoly?

An industry with only a small number of firms.

What is imperfect competition?

When no one firm has a monopoly, but producers can nonetheless affect market prices.

What is the Herfindahl–Hirschman Index (HHI)?

The square of each firm’s share of market sales summed over the industry, giving a picture of the industry market structure.

What is monopolistic competition?

A market structure with many firms selling differentiated products and free entry and exit from the industry.

What is the price-taking firm’s optimal output rule?

A price-taking firm maximizes profit by producing where market price equals marginal cost of the last unit produced.

What is the break-even price?

The market price at which a price-taking firm earns zero profit.

When will a firm cease production in the short run?

If the market price falls below the shut-down price, which equals minimum average variable cost.

What does the short-run individual supply curve show?

How an individual firm’s profit-maximizing level of output depends on the market price, taking fixed cost as given.

What does the short-run industry supply curve illustrate?

How the quantity supplied by an industry depends on the market price, given a fixed number of firms.

What is short-run market equilibrium?

When the quantity supplied equals the quantity demanded, taking the number of producers as given.

What defines long-run market equilibrium?

When quantity supplied equals quantity demanded, given sufficient time for entry and exit from the industry.