20 Entry, Exit and Long-Run Profitability

These flashcards cover key concepts related to entry and exit in markets, long-run profitability, and the economic principles underlying competition.

Imperfect competition

A market structure where firms have some control over pricing due to differentiation.

Economic profit

Total revenue minus total economic costs, including implicit opportunity costs.

Accounting profit

Total revenue minus total financial costs, focused only on out-of-pocket expenses.

Opportunity cost

The value of the next best alternative forgone when making a decision.

Average Revenue (AR)

Total revenue divided by quantity sold; equivalent to price.

Average Cost (AC)

Total cost divided by quantity produced, reflecting both fixed and variable costs.

Market power

The ability of a firm to influence the price of its product.

Entry and Exit

The ability of firms to join or leave a market over time depending on profitability.

Demand curve

A graph showing the relationship between the price of a good and the quantity demanded.

Barriers to entry

Obstacles that prevent new firms from easily entering a market.

Fixed costs

Costs that do not vary with production level, such as rent.

Variable costs

Costs that vary directly with the level of production, such as labor and materials.

Deterrence strategies

Methods used by existing firms to discourage new entrants into the market.

Regulatory strategies

Government-imposed barriers that restrict entry, such as licensing and patents.

Supply-side strategies

Methods used by existing firms to achieve lower costs to maintain a competitive advantage.

Demand-side strategies

Methods used by firms to maintain customer loyalty and reduce the appeal of new entrants.

Long-run equilibrium

A state in which economic profits in a market tend to zero as firms enter or exit.