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accounting profit
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Total revenue minus the explicit costs of production. Ex: If a firm sells 100 beach balls at $2 per ball, then the total revenue equals $200. If the firm spends $125 on labor, capital, and materials, then accounting profit equals $200 - $125 = $75
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barriers to entry
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Anything that prohibits or discourages new firms from entering into a market. Perfect competition is assumed to have no significant barriers to the entry of new firms or the exit of existing firms from the industry in the long run.
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commodity
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A good that is identical regardless of which firm produced it.
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economic profit
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Accounting profit minus the opportunity cost of production. Ex: A firm has an accounting profit of $75. If the firm's resources could have earned an accounting profit of $70 in another industry, then the economic profit equals $75-$70=$5
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normal profit
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This exists when a firm earns zero economic profit in an industry. It provides neither an incentive for firms to enter or to exit the industry.
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homogeneous products
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Products that are identical or so similar that consumers can't or don't distinguish between the products made by various firms.
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perfect competition
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A market condition in which buyers and sellers have no influence over price because they are small, independent trade commodities, and are unable to place barriers to entry or exit from the market.
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