Perfect Competition and Efficiency

These flashcards cover key concepts related to perfect competition and efficiency.

Perfect Competition

A market structure where many firms offer a homogeneous product, and no single firm can influence the market price.

Price Taker

A firm that must accept the market price as given and cannot influence it.

Normal Profit

The minimum level of profit needed for a company to remain competitive in the market.

Economic Profit

Profit that exceeds the normal profit level, providing additional incentives for firms to enter the market.

Long-Run Equilibrium

A situation in which all firms in a perfectly competitive market are making zero economic profit, where price equals minimum average total cost.

Productive Efficiency

Producing goods at the lowest possible cost, occurring when price is equal to the minimum average total cost.

Allocative Efficiency

Allocating resources to produce the goods and services most wanted by society, where price equals marginal cost.

Shutdown Point

The point at which a firm's total revenue is less than its total variable costs, leading firms to cease operations in the short run.

Marginal Cost (MC)

The additional cost incurred by producing one more unit of a good or service.

Average Total Cost (ATC)

The total cost of production divided by the number of units produced.

Incentive to Enter or Leave the Market

Factors that cause firms to either join an industry for profit opportunities or exit to avoid losses.

Supply Curve

A graphical representation showing the relationship between the price of a good and the quantity supplied.

Demand Curve

A graphical representation showing the relationship between the price of a good and the quantity demanded.

Externality

A consequence of an economic activity that affects other parties without this being reflected in market prices.

Economies of Scale

Cost advantages reaped by companies when production becomes efficient, as the scale of production increases.

Market Equilibrium

A state in which market supply and demand balance each other, and as a result, prices become stable.