CHAPTER 7 Pure Competition

These flashcards cover key concepts related to pure competition, including market models, types of revenue, profit maximization strategies, and efficiency in long-run competition.

Four Market Models

Includes pure competition, monopolistic competition, oligopoly, and pure monopoly.

Pure Competition Characteristics

Defined by very large numbers of sellers, standardized products, price takers, easy entry and exit, and perfectly elastic demand.

Average Revenue (AR)

Revenue per unit, calculated as AR = TR/Q = P.

Total Revenue (TR)

Total income from sales, calculated as TR = P × Q.

Marginal Revenue (MR)

Extra revenue from selling one more unit, calculated as MR = ΔTR/ΔQ.

Profit Maximization Questions

Should the firm produce, what amount to produce, and what economic profit or loss will be realized?

Marginal Cost (MC)

The change in total cost that results from producing one additional unit of output.

Loss Minimization

Occurs when a firm continues to produce since price (P) is greater than the minimum average variable cost (AVC).

Shutdown Point

Occurs when price is less than minimum average variable cost (P < min AVC).

Long-Run Equilibrium

Achieved when firms enter to eliminate profits or exit to eliminate losses, stabilizing supply and price.

Constant-Cost Industry

An industry where entry and exit do not affect long-run average total cost (LR ATC).

Productive Efficiency

Achieved when production occurs at the lowest point of average total cost (P = min ATC).

Allocative Efficiency

Achieved when the price (P) reflects the marginal cost (MC) of production.

Dynamic Adjustments

The ability of purely competitive markets to automatically adjust to changes in consumer tastes, resource supplies, and technology.