Production and Profit Maximization: Perfect Competition

These flashcards cover key concepts from the lecture on production and profit maximization under perfect competition.

Perfect Competition

A market structure characterized by many buyers and sellers with standardized products, where participants are price-takers.

Price-Takers

Firms or individuals that have no influence over the market price and must accept the prevailing market price.

Standardized Product

A product that is perceived as identical across different sellers, allowing consumers to regard options as equivalent.

Free Entry and Exit

The condition that allows firms to enter or leave an industry without significant barriers.

Marginal Revenue (MR)

The change in total revenue from selling one additional unit of output.

Total Revenue (TR)

The total amount of money a seller receives from selling goods or services, calculated as price times quantity sold.

Economic Profit

Profit that accounts for both explicit and implicit costs, typically smaller than accounting profit.

Break-even Price

The market price at which a firm earns zero economic profit, occurring when price equals average total cost (P=ATC).

Short-Run Supply Curve

A curve that represents the relationship between price and quantity supplied in the short run, based on variable costs.

Long-Run Equilibrium

A condition where firms in a perfectly competitive market earn zero economic profit, leading to market stability.

Shut-down Price

The minimum average variable cost at which a firm will continue to produce in the short run.

Profit-maximizing Output Rule

The guideline for a firm to produce where marginal revenue equals marginal cost (MR=MC) to maximize profit.