Economics: Perfect Competition and Monopoly

Flashcards covering key concepts from economics, specifically focusing on profit, costs, market structures, and the principles of perfect competition and monopoly.

Profit

Total revenue minus total cost.

Fixed Costs

Costs that do not vary with the quantity of output produced (e.g., Rent).

Variable Costs

Costs that vary with the quantity of output produced (e.g., Wages).

Average Total Cost

Total cost divided by the quantity of output.

Marginal Cost (MC)

The increase in total cost that arises from an extra unit of production; calculated as MC = rac{ ext{∆TC}}{ ext{∆Q}}.

Perfect Competition

A market structure where many firms sell identical products and where firms can freely enter and exit the market.

Price Taker

A firm that must accept the prevailing market price for its product.

Total Revenue

The total income from sales, calculated as Price multiplied by Quantity.

Marginal Revenue (MR)

The change in total revenue from selling an additional unit.

Shutdown Decision in Short Run

A firm will shut down if total revenue is less than variable costs; specifically if Price < minimum Average Variable Cost.

Sunk Cost

A cost that has already been incurred and cannot be recovered.

Exit Decision in Long Run

A firm will exit the market if total revenue is less than total costs; specifically if Price < Average Total Cost.

Natural Monopoly

A market where a single firm can produce at a lower cost than multiple firms due to the nature of the industry.

Legal Monopoly

A firm that has exclusive rights to produce a good or service granted by the government.

Demand Curve for a Monopolist

The demand curve facing a monopolist, which is downward sloping and represents the market demand for the product.

Profit Maximization for Monopolists

Occurs where Marginal Revenue equals Marginal Cost.

Welfare Cost of Monopolies

The loss of economic efficiency that occurs when the equilibrium outcome is not achievable or not achieved in a market.