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Allocative efficiency
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A state of the economy in which production represents consumer preferences; in particular, 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.
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Average revenue (AR)
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Total revenue divided by the quantity of the product sold.
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Economic loss
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The situation in which a firm's total revenue is less than its total cost, including all implicit costs.
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Economic profit
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A firm's revenues minus all its costs, implicit and explicit.
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Long-run competitive equilibrium
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The situation in which the entry and exit of firms has resulted in the typical firm breaking even.
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Long-run supply curve
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A curve that shows the relationship in the long run between market price and the quantity supplied.
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Marginal revenue (MR)
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The change in total revenue from selling one more unit of a product.
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Perfectly competitive market
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A market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.
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Price taker
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A buyer or seller that is unable to affect the market price.
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Productive efficiency
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The situation in which a good or service is produced at the lowest possible cost.
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Profit
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Total revenue minus total cost.
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Shutdown point
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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.
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Sunk cost
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A cost that has already been paid and cannot be recovered.
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