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market structure
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the conditions in an industry, such as number of sellers, how easy or difficult it is for a new firm to enter, and the type of products that are sold
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perfect competition
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market structure where each firm faces many competitors that sell identical products so that no firm has any market power
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price taker
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firms in a perfectly competitive market; since no firm has any market power they must take the prevailing market price as given
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marginal revenue
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the additional revenue gained from selling one more unit of output
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profit
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the difference between total revenues and total costs
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profit-maximizing rule for a perfectly competitive firm
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produce the level of output where marginal revenue equals marginal cost
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break-even point
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the level of output where price just equals average total cost, so profit is zero
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profit margin
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at any given quantity of output, the difference between price and average total cost; also known as average profit
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break-even point
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level of output where the marginal cost curve intersects the average cost curve at the minimum point of AC; if the price is at this point, the firm is earning zero economic profits
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shutdown point
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level of output where the marginal cost curve intersects the average variable cost curve at the minimum point of AVC; if the price is below this point, the firm should shut down immediately
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constant cost industry
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an industry whose technology is such that there is no advantage to size; a large firm faces the same average costs as a small firm does.
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entry
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the long-run process of firms entering an industry in response to industry profits
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exit
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the long-run process of firms reducing production and shutting down in response to industry losses
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long-run equilibrium
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where all firms earn zero economic profits producing the output level where P = MR = MC and P = AC
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zero economic profits
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a firm is covering all of its cost, including the opportunity costs of its capital; i.e. normal accounting profits
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allocative efficiency
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when the mix of goods being produced represents the mix that society most desires
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productive efficiency
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given the available inputs and technology, it's impossible to produce more of one good without decreasing the quantity of another good that's produced
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