Market Structures in Economics: Perfect Competition

These flashcards cover important vocabulary and key concepts related to market structures, particularly focusing on perfect competition.

Perfect Competition

A market structure characterized by many buyers and sellers, identical products, no barriers to entry, and no control over price.

Profit-Maximizing Rule

A principle stating that firms maximize profit by producing where marginal revenue equals marginal cost (MR = MC).

Economic Profit

The profit earned when total revenue exceeds total costs, including both explicit and implicit costs.

Normal Profit

The profit that occurs when total revenue equals total costs, resulting in zero economic profit.

Marginal Revenue

The additional income received from selling one more unit of a product, calculated as the change in total revenue divided by the change in quantity sold.

Shutdown Point

The price point at which a firm covers its variable costs; if the price falls below this point, the firm should cease production.

Short-Run Supply Curve

The curve that illustrates the relationship between price and the quantity supplied by a firm in the short run, typically derived from the marginal cost curve.

Allocative Efficiency

A state of the economy where resources are allocated in a way that maximizes the total benefit received by all members of society.

Productive Efficiency

A situation in which goods are produced at the lowest possible cost.

Long-Run Equilibrium

The condition that occurs in a competitive market when firms have entered or exited the market, leading to zero economic profits.