Vocab - AP Micro

A price-taking firm is a firm whose actions have no effect on the market price of the good or service it sells.

A price-taking consumer is a consumer whose actions have no effect on the market price of the good or service he or she buys.

A perfectly competitive market is a market in which all market participants are price- takers.

A perfectly competitive industry is an industry in which firms are price-takers.

A firm’s market share is the fraction of the total industry output accounted for by that firm’s output.

A good is a standardized product, also known as a commodity, when consumers regard the products of different firms as the same good.

An industry has free entry and exit when new firms can easily enter into the industry and existing firms can easily leave the industry.

A monopolist is the only producer of a good that has no close substitutes. An industry controlled by a monopolist is known as a monopoly.

A natural monopoly exists when economies of scale provide a large cost advantage to a single firm that produces all of an industry’s output

A patent gives an inventor a temporary monopoly in the use or sale of an invention.

A copyright gives the creator of a literary or artistic work the sole right to profit from that work for a specified period

of time.

An oligopoly is an industry with only a small number of firms. A producer in such an industry is known as an oligopolist.

When no one firm has a monopoly, but producers nonetheless realize that they can affect market prices, an industry is characterized by imperfect competition.

Herfindahl–Hirschman Index, or HHI, is the square of each firm’s share of market sales summed over the industry. It gives a picture of the industry market structure.

Monopolistic competition is a market structure in which there are many competing firms in an industry, each firm sells a differentiated product, and there is free entry into and exit from the industry in the long run.

The price-taking firm’s optimal output rule says that a price-taking firm’s profit is maximized by producing the quantity of output at which the market price is equal to the marginal cost of the last unit produced.

The break-even price of a price-taking firm is the market price at which it earns zero profit.

A firm will cease production in the short run if the market price falls below the shut-down price, which is equal to minimum average variable cost.

The short-run individual supply curve shows how

an individual firm’s profit- maximizing level of output depends on the market price, taking the fixed cost as given.

The short-run industry supply curve shows how the quantity supplied by an industry depends on the market price, given a fixed number of firms.

There is a short-run market equilibrium when the quantity supplied equals the quantity demanded, taking the number of producers as given.

A market is in long-run market equilibrium when the quantity supplied equals the quantity demanded, given that sufficient time has elapsed for entry into and exit from the industry to occur.