Econ 102 Chapter 10

Loss

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

The Four Characteristics of a Perfectly Competitive Market

the number of buyers and sellers is large The product is standardized The producers are price takers Easy entry and exit

Perfect Competition

a market structure characterized by the interaction of large numbers of buyers and sellers, in which the sellers produce a standardized or homogenous 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 or exit an industry.

Constant-Cost Industry

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

Profit-Maximizing Rule

Produce at the quantity at which MR = MC

Allocative Efficiency

Producing the goods and services that are most wanted by consumers in such a way that their marginal benefit equals their marginal cost.

Average Revenue

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

Marginal Revenue

The Change in firm's total revenue that results from a one-unit change in output produced and sold.

Normal Profit

The level of profit that occurs when total revenue is equal to total cost. This level indicated 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.

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.

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

Price Takers

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

Productive Efficiency

producing output at the lowest possible average total cost of production; using the fewest resources possible to produce a good or service

Economic Profit

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

Shutdown Point

the price below which a firm will choose not to operate in the short run. Numerically, this point occurs when marginal revenue equals marginal cost at the minimum average variable cost. Graphically, this point occurs where the price, or marginal revenue curve, intersects the marginal cost curve at the minimum point of the average variable cost curve (AVC).