Perfectly Competitive Market
options for firms suffering losses (SHORT RUN)
1) continue to produce (TR>VC) 2) stop production by shutting down temporarily
conditions of a perfectly competitive market
1) many buyers and sellers 2) all firms selling identical products 3) no barriers to new firms entering the market
price taker
A buyer or seller that is unable to affect the market price.
Marginal revenue (MR)
Change in total revenue from selling one more unit
Total Revenue (TR)
Price multiplied by quantity, units or output produced. TR=P x Q
Shutdown point
The minimum point on a firm's average variable cost curve; if the price falls below this point, the firm shuts down production in the short run.
Long-run Competitive Equilibrium
The situation in which the entry and exit of firms have resulted in the typical firm just breaking even.
productive efficiency
The situation where every good or service is produced at the lowest possible cost. For productive efficiency to hold, firms must produce at the minimum point of average total cost.
allocative efficiency
The situation where every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it. For allocative efficiency to hold, firms must charge a price equal to marginal cost.
Average revenue (AR)
Total revenue divided by the number of units sold. TR/Q=PxQ/Q=P
Profit
Total revenue minus total cost. Profit = TR - TC
sunk cost
a cost that has already been paid and that canot be recovered
