COMM 295 Lecture 04: Perfect Competition - Short Run

Vocabulary flashcards covering market structures, characteristics of perfect competition, short-run profit maximization, shutdown conditions, and supply curve derivation.

Monopoly

A market structure with one supplier protected by strong barriers to entry, substantial price control, no direct rivals, and products with no close substitutes.

Oligopoly

A market structure characterized by a few major firms with strategic interdependence, where barriers to entry exist and rivals are central to strategy.

Monopolistic Competition

A market structure featuring many sellers of differentiated products, free entry and exit, some price control ($P > MC$), and zero long-run economic profit.

Perfect Competition

A market structure with many small sellers and buyers of a homogeneous product, where firms have no price control, act as price takers, and earn zero long-run economic profit.

Price Taker

A firm that takes the market price as given because it is too small relative to the market to influence price through its own output decisions.

Conditions of Perfect Competition

Five market characteristics: many buyers and sellers, homogeneous products, full information, low transaction costs, and free entry and exit in the long run.

Marginal Revenue ($MR$) in Perfect Competition

The change in revenue per unit increase in output ($MR = \frac{dR(q)}{dq}$); for a price-taking firm, it is constant and strictly equal to market price ($p$).

Competitive Profit-Maximizing Condition

The operational rule for a price-taking firm requiring it to choose output where price equals marginal cost ($p = MC$).

Short Run Shut Down Rule

The principle stating a firm should shut down if total revenue is less than avoidable variable costs ($R < VC$ or $p < AVC$), and operate if price is greater than or equal to average variable cost ($p \ge AVC$).

Short Run Supply Curve (Individual Firm)

The portion of a competitive firm's marginal cost ($MC$) curve that lies above the minimum point of its average variable cost ($AVC$) curve.

Short Run Market Supply Curve

The horizontal sum of the supply curves of all individual firms in the market, which equals $N$ times the supply of an individual firm when there are $N$ identical firms.

Variable Profit

The difference between total revenue and variable costs, calculated as $R - VC$ or $p \times q - VC(q)$.