Firms in Competitive Markets

Flashcards covering key concepts related to competitive markets and firms, based on the lecture notes.

Competitive Market

A market is competitive if each buyer and seller is small compared to the market.

Marginal Revenue

The additional revenue a firm receives from selling one more unit; in a perfectly competitive market, it equals the price of the good.

Profit Maximization

The situation where a firm determines the output level where marginal cost equals marginal revenue.

Short-Run Supply Curve

The portion of the marginal cost curve that lies above the average variable cost curve.

Exit Criterion

For a profit-maximizing firm, the condition where price is less than average total cost.

Long-Run Equilibrium

The state of the market where firms are making zero economic profit and no firms have the incentive to enter or exit.

Average Revenue

Total revenue divided by the quantity sold; in a competitive market, it equals market price.

Variable Costs

Costs that change with the level of output produced.

Market Price

The price determined by supply and demand in a competitive market.

Decision to Shut Down

A short-run decision made by a firm to stop production when total revenue is less than variable costs.