Chapter 8: Perfect Competition

These flashcards cover key vocabulary and concepts related to Perfect Competition as detailed in Chapter 8 of the lecture notes.

Economic Profit

The difference between total revenue and total cost (π = TR - TC).

Marginal Revenue (MR)

The additional revenue gained from selling one more unit of a product, which is equal to price in perfect competition.

Marginal Cost (MC)

The increase in total cost that arises from producing one additional unit of output.

Short Run Average Variable Cost (SRAVC)

The variable cost per unit of output in the short run.

Price Taker

A firm that must accept the market price as given because it is too small to affect the market price.

Break-Even Point

The output level where total revenue equals total cost, resulting in zero economic profit (π = 0).

Shutdown Point

The situation in which a firm should cease operations because the price falls below the minimum average variable cost (AVC).

Total Variable Cost (TVC)

The total cost that varies with the level of output.

Short Run Supply Curve

The curve that shows the quantity of a good that a firm is willing and able to supply at different prices in the short run.

Long Run Equilibrium

The state in which the quantity supplied equals the quantity demanded and all firms earn zero economic profit (π = 0) in the long run.

Increasing Cost Industry

An industry in which the entry of new firms raises the costs of production for all firms.

Constant Cost Industry

An industry in which the entry of new firms does not affect the costs of production for all firms.

Decreasing Cost Industry

An industry in which the entry of new firms reduces the costs of production for all firms.

Marginal Benefit (MB)

The additional benefit received from consuming one more unit of a good or service.

Average Total Cost (ATC)

Total cost divided by the quantity of output produced.