Market Structures and Perfect Competition

These flashcards cover key vocabulary and concepts from the notes on market structures and perfect competition.

Perfect Competition

A market structure characterized by many small firms producing identical products, easy entry and exit, and no control over prices.

Price Takers

Firms in a perfectly competitive market that cannot set their own prices and must accept the market price.

Marginal Cost (MC)

The additional cost incurred from producing one more unit of output.

Average Total Cost (ATC)

Total costs divided by the quantity of output produced.

Average Variable Cost (AVC)

Variable costs divided by the quantity of output produced.

Law of One Price

In an efficient market, identical goods must have only one price.

Elastic Demand

A highly responsive demand curve whereby consumers will buy more at lower prices and less at higher prices.

Shut Down Rule

A firm should shut down if the price falls below the Average Variable Cost (AVC).

Total Revenue (TR)

The total money received from selling a certain quantity of goods or services.

Marginal Revenue (MR)

The additional revenue gained by selling one more unit of a good.

Profit Maximizing Rule

A firm maximizes profit when marginal revenue (MR) equals marginal cost (MC).

Imperfect Competition

Market structures that do not meet the criteria of perfect competition, such as monopolistic competition and oligopoly.

Economic Loss

When total costs exceed total revenues, resulting in a negative profit.

Market Demand Curve

The graphical representation of the total quantity of a good demanded across all consumers in the market at various price levels.

Perfectly Elastic Demand Curve

A horizontal demand curve indicating that firms can sell any amount of their product at the market price.