Chapter 9: Pure Competition

Pure competition

A very large number of firms producing a standardized product; easy market entry/exit

Allocative efficiency

- Resources apportioned among firms + industries to yield mix of goods /services most wanted by society.

Pure monopoly

1 firm is sole seller of good/service; no market entry

Monopolistic competition

Relatively large number of sellers producing differentiated products; non-price competition

Oligopoly

Only a few sellers of a standardized or differentiated product; mutual interdependence

Price taker

Cannot change market price, can only adjust to it

Average revenue

Revenue per unit

Total revenue

Price * corresponding quantity firm can sell

Marginal revenue

Change in total revenue (or the extra revenue) that results from selling one more unit of output

Break-even point

Firm makes normal profit but not economic profit

MR = MC rule

In the short run, the firm will maximize profit or minimize loss by producing the output at which marginal revenue equals marginal cost (as long as producing is preferable to shutting down).

Short-run supply curve

Solid segment of marginal cost curve

Long-run supply curve

Effect that changes in number of firms in industry will have on costs of individual firms in industry

Constant cost industry

Industry expansion or contraction will not affect resource prices and therefore production costs

Decreasing cost industries

Industry expands → Firms experience lower costs

Productive efficiency

Goods being produced in least costly way

Allocative efficiency

Resources apportioned among firms + industries to yield mix of goods/services most wanted by society

Consumer surplus

Difference between the maximum prices that consumers are willing to pay for a product (as shown by the demand curve) and the market price of that product

Producer surplus

Difference between the minimum prices that producers are willing to accept for a product (as shown by the supply curve) and the market price of the product