Perfect Competition

Flashcards covering key terms and concepts related to Perfect Competition in economics.

Perfect Competition

A market structure characterized by many sellers, easy entry and exit of firms, identical products, and sellers being price takers.

Price Taker

A firm that has no influence on the market price of its product and must accept the market price determined by supply and demand.

Allocative Efficiency

Achieved when the price of a good equals the marginal cost of production, indicating that resources are allocated in the most efficient way.

Productive Efficiency

Occurs when goods are produced at the lowest possible average cost.

Zero Profit Point

The output level where total revenue equals total cost, resulting in zero economic profit.

Shutdown Point

The price level at which a firm will cease production because it cannot cover its variable costs.

Marginal Revenue (MR)

The additional revenue that an additional unit of output generates; in perfect competition, it is equal to the price.

Demand Curve for Perfect Competition

A horizontal line indicating that a firm can sell as much as it wants at the market price but none at a higher price.

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs.

Break-even Point

A situation where total revenue equals total costs, resulting in neither profit nor loss.

Entry and Exit Decisions

Choices made by firms based on the potential for profit; firms enter when profits are positive and exit when sustained losses occur.

Long Run Equilibrium

A condition in a perfectly competitive market where firms earn zero economic profits, and no firms enter or leave the industry.

Inferior Goods

Goods whose demand decreases when consumer incomes rise, often contrasted with normal goods.

Normal Profit

The minimum profit needed to keep a firm in operation, which occurs when total revenues equal total costs.

Homogeneous Products

Products that are identical in the eyes of consumers, leading to no preference for a seller over another.

Market Clearing Price

The price at which the quantity of goods supplied equals the quantity of goods demanded.

Marginal Cost (MC)

The additional cost incurred from producing one more unit of a good or service.

Total Revenue (TR)

The total income received from selling a product, calculated as price times quantity sold.

Average Total Cost (ATC)

Total costs divided by the quantity of output produced, indicating the per-unit cost of production.