Principles of Economics - Lecture 3: Perfect Competition, Production and Efficiency

These flashcards cover key vocabulary and concepts from Lecture 3 on Perfect Competition, Production, and Efficiency, which will aid in exam preparation.

Perfect Competition

A market structure where many firms offer identical products and no single firm can influence the market price.

Profit Maximization

The process by which a firm determines the price and output level that leads to the highest profit.

Total Cost (TC)

The sum of all payments for all inputs, including both fixed and variable costs.

Marginal Cost (MC)

The change in total cost that arises when the quantity produced is incremented by one unit.

Law of Diminishing Returns

The principle stating that as more of a variable input is added to a fixed input, the additional output will eventually decline.

Average Variable Cost (AVC)

Total variable cost divided by the quantity of output produced.

Economic Profit

The difference between total revenue and the sum of explicit and implicit costs.

Fixed Cost (FC)

Costs that do not change with the level of output, such as rent or salaries.

Variable Cost (VC)

Costs that change with the level of output, such as labor and raw materials.

Market Equilibrium

The state in which market supply and demand balance each other, resulting in stable prices.

Price Ceiling

A maximum allowable price, set by law, to prevent prices from rising above a certain level.

Subsidy

A government payment to help reduce the cost of producing a good or service.