Perfect Competition

Profit Maximization

Choosing output level to maximize profit.

Marginal Revenue (MR)

Additional revenue from selling one more unit.

Marginal Cost (MC)

Cost of producing one additional unit.

Profit Maximizing Condition

Set MC equal to MR for optimal output.

Short-Run Supply Curve

Shows quantity supplied at various prices in short run.

Long-Run Supply Curve

Shows quantity supplied at various prices in long run.

Break Even Point

TR equals TC; no profit or loss.

Average Revenue (AR)

TR divided by quantity sold; equals price.

Diminishing Returns

Decreasing additional output from increased input.

Short-Run Decisions

Focus on immediate production and profit.

Long-Run Decisions

Consider market exit or entry based on profitability.

Market Entry

Joining the market when profits are positive.

Quantity of Output

Amount produced to maximize profit.

Free Pizza Event

Informational session with refreshments for prospective majors.

Faculty Interaction

Opportunity to engage with department staff.

Break-even Price

Price equal to minimum ATC, no profit or loss.

Profit Condition

Firm profits when price exceeds average total cost.

Loss Condition

Firm incurs losses when price is below minimum ATC.

Shutdown Decision

Temporary halt in production due to losses.

Profit Maximization Rule

Set marginal revenue equal to marginal cost.

Short-run Production

Firm must cover variable costs to continue operating.

Fixed Costs

Costs that must be paid regardless of output.

Variable Costs

Costs that vary with the level of output.

Output Choices

Decisions on quantity produced based on price.

Price of $60

Specific price point for profit maximization analysis.

Price of $180

Higher price point for profit maximization analysis.

Production at a Loss

Occurs when price is less than average total cost.

Profit Calculation

Difference between total revenue and total costs.

Short-run vs Long-run

Different decision criteria for production and exit.

Market Price Comparison

Determines profitability against minimum average total cost.

Positive Level of Output

Firm produces when price covers variable costs.

Decision Criteria

Factors influencing shutdown or exit from market.

Firm's Profitability

Depends on market price relative to minimum ATC.

Output Maximization

Producing quantity that yields highest profit.

Production Covering Variable Costs

Essential for firm to remain operational in short run.

Fixed Cost

Constant cost in the short run for a firm.

Variable Cost

Costs that change with the level of output.

Total Revenue (TR)

Income from selling goods, calculated as P x Q.

Average Variable Cost (AVC)

Variable cost per unit of output produced.

Minimum AVC

Lowest average variable cost at any output level.

Short-run Decision

Decision made with fixed inputs and costs.

Long-run Decision

Decision involving flexibility in inputs and costs.

Entry Decision

Choosing to enter the market based on profitability.

Exit Decision

Choosing to leave the market due to losses.

Perfect Competition

Market structure with free entry and exit.

Barriers to Entry

Obstacles that prevent firms from entering a market.

Zero Economic Profit

Occurs when P equals minimum ATC.

Price (P)

Amount charged for a good or service.

Total Cost (TC)

Sum of fixed and variable costs for production.

Short-run Shutdown

Stopping production when price falls below min AVC.

Long-run Market Equilibrium

Condition where no firms enter or exit the market.

Profitability

Ability to generate profit over costs.

Market Structure

Characteristics defining competition level in an industry.

Cost Structure

Composition of fixed and variable costs for a firm.

Production Decision

Choice to produce based on cost and revenue analysis.

Firm's Output Level

Quantity of goods produced by a firm.

Opportunity Cost

Value of the next-best alternative forgone.

Positive Economic Profits

Indicates misallocation; producers should switch industries.

Zero Profit Condition

Value of production equals next-best alternatives.

Short-Run Individual Supply Curve

Shows quantity supplied at various market prices.

Shutdown Price

Price below which a firm ceases production.

Price Equals Marginal Cost

Condition for profit-maximizing output level.

Short-Run Industry Supply Curve

Horizontal sum of individual supply curves.

Identical Firms Assumption

All firms have the same cost structure.

Market Price

Price at which goods are sold in the market.

Short-Run Market Equilibrium

Quantity supplied equals quantity demanded.

Industry Quantity Supplied

Total quantity from all firms at each price.

Producers

Firms or individuals that supply goods.

Misallocation of Producers

Producers in wrong market should switch.

Positive Output Production

Occurs when market price exceeds shutdown price.

Short-Run Production Decision

Determines output based on current market conditions.

Figure 25-2

Graph illustrating the short-run individual supply curve.

Figure 26-1

Graph showing short-run market equilibrium.

Intermission

A break in the lecture or discussion.

Short-Run Adjustment

Response to demand shift with fixed firms.

Marginal Cost

Cost of producing one additional unit.

Market Clearing Price

Price where quantity supplied equals quantity demanded.

Equilibrium Price

Price at which supply equals demand.

Positive Profit

Earnings exceeding total costs in short run.

Average Total Cost (ATC)

Total cost per unit of output.

Long-Run Adjustment

Market response to sustained demand changes.

New Entrants

Firms entering market due to positive profits.

Minimum ATC

Lowest average total cost achievable by firms.

Incumbent Firms

Existing firms in the market.

Quantity Supplied

Total amount of goods firms are willing to sell.

Economic Profit

Profit exceeding normal returns on investment.

Demand Increase Effect

Higher price and quantity in short run.

Long-Run Supply Curve (LRS)

Shows supply response after market adjustments.

Production Adjustment

Change in output levels by firms.

Long-Run Industry Supply Curve

Reflects firms' ability to enter and exit market.

Perfectly Elastic Supply

Long-run supply is elastic at break-even price.

Break-Even Price

Price where firms make zero profit.

Minimum Average Total Cost (ATC)

Lowest cost per unit when producing output.

Entry and Exit

Market adjustments based on demand shifts.

Scarce Input

Limited resource increasing industry's costs.

Short-Run Supply

Less elastic than long-run supply curve.

Long-Run Equilibrium

Firms produce at minimum ATC, zero profit.

Demand Increase

Leads to short-run output increase by firms.

Positive Profits

Encourages new firms to enter the market.

Demand Decrease

Results in short-run output reduction by firms.