Pure Competition Chapter Review

This set of flashcards covers key vocabulary terms and concepts related to Pure Competition from the chapter.

Pure Competition

A market structure with a very large number of sellers offering a standardized product with no control over prices.

Characteristics of Pure Competition

Includes very large numbers of sellers, a standardized product, price takers, and free entry and exit in the market.

Demand Curve in Pure Competition

The demand curve for a purely competitive firm is perfectly elastic, meaning the firm can sell any quantity at the market price.

Total Revenue (TR)

The total revenue is calculated by multiplying the price (P) by the quantity (Q) sold: TR = P × Q.

Marginal Revenue (MR)

The additional revenue generated from selling one more unit of a product, equal to the change in total revenue divided by the change in quantity.

Profit Maximization Rule

A competitive firm maximizes profit by producing the output level where marginal revenue (MR) equals marginal cost (MC).

Short-Run Supply Curve

In the short run, a firm's supply curve is determined by its marginal cost curve, as long as it covers the average variable cost.

Break-even Point

The level of output at which total revenue equals total cost, resulting in zero economic profit.

Long-Run Equilibrium

In the long run, firms can enter or exit the industry, leading to a situation where price equals minimum average total cost.

Productive Efficiency

Occurs when the price of the product is equal to the minimum average total cost (P = minimum ATC).

Allocative Efficiency

Achieved when the price of the product equals marginal cost (P = MC).

Creative Destruction

The process by which innovation and competition create new products and methods, leading to the obsolescence of older ones.