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Profit Maximization
Firms aim to maximize profits and minimize losses.
Free Entry and Exit
No restrictions for firms entering or leaving the market.
Long-Run Equilibrium
Condition where MR = MC and price equals minimum ATC.
Economic Profit
Zero economic profit occurs in long-run equilibrium.
Market Supply Increase
More firms entering raises overall market supply.
Long-Run Supply Curve
Price remains constant; output adjusts with demand.
Constant-Cost Industry
Entry/exit does not affect market prices.
Increasing-Cost Industry
Expansion raises input prices, creating upward supply curve.
Decreasing-Cost Industry
Expansion lowers costs, leading to downward supply curve.
Productive Efficiency
Goods produced at the lowest possible cost.
Allocative Efficiency
Price equals marginal cost, maximizing resource allocation.
Consumer Surplus
Difference between maximum price consumers pay and actual price.
Producer Surplus
Difference between minimum price producers accept and received price.
Normal Profit
In long run, firms earn zero economic profit.
Supernormal Profit
Short-run profit occurs when MR exceeds ATC.
Market Adjustments
Entry/exit of firms adjusts prices and quantities.
Homogeneous Products
Identical products offered by all firms in market.
Price Takers
Firms accept market price; cannot influence it.
Perfect Information
Complete knowledge of prices and market conditions exists.
Optimal Resource Allocation
Resources allocated efficiently, maximizing total economic surplus.
Short-Run Losses
Firms exit market when MR is below ATC.
Total Surplus Maximization
Perfect competition leads to no deadweight loss.
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