perfect competition

long run equilibrium

A market condition in which firms do not face incentives to enter or exit the market and firms earn a normal profit. Generally, it occurs when the market price is equal to the minimum average total cost faced by firms.

long-run supply curve

A supply curve that represents the long-run relationship between price and quantity supplied.

short-run supply curve

A supply curve that represents the short-run relationship between price and quantity supplied. For a perfectly competitive firm, the portion of the marginal cost curve that is at or above the minimum point of the average variable cost curve.

produce at a loss if

AVC < p < ATC

Profit Maximizing Rule

All firms maximize profit by producing where MR = MC

average revenue

Revenue per unit sold, equal to total revenue divided by the quantity of output produced and sold.

constant cost industry

an industry in which the firms' cost structures do not vary with changes in production

price takers

firms that take or accept the market price and have no ability to influence that price

perfect competition

market structure characterized by the interaction of large numbers of buyers and sellers in which the sellers produce a standardized, or homogeneous, product. These sellers are price takers, can sell as much output as they choose to produce at the market price and have the ability to easily enter/exit an industry

Shut down if

p < AVC

marginal revenue

the change in total revenue from an additional unit sold

loss

the level of profit that occurs when total revenue is less than total cost

shutdown point

the point at which price equals minimum average variable cost and the quantity produced is that at which average variable cost is at its minimum

normal profit

The level of profit that occurs when total revenue is equal to total cost. This level indicates that a firm is doing just as well as it would have if it had chosen to use its resources to produce a different product or compete in a different industry. Normal profit is also known as zero economic profit.