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price-taking producer
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is a producer whose actions have no effect on the market price of the good or service it sells
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price-taking consumer
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a consumer whose actions have no effect on the market price of the good or service he or she buys
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perfectly competitive market
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a market in which all market participants are price-takers
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market share
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(A producer's)......is the fraction of the total industry output accounted for by that producer's output.
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Standardized product/Commodity
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(A good)....when consumers regard the products of different producers as the same good.
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free entry and exit
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when new producers (or firms) can easily enter into an industry and existing producers (or firms) can easily leave that industry
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marginal revenue
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the change in total revenue generated by an additional unit output.
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Optimist output rule
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Profit is maximized by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost.
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Price-Taking Firm's Optimal Output Rule
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A price-taking firm's profit is maximized by producing the quantity of output at which the market price is equal to the marginal cost of the last unit produced.
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marginal revenue curve
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shows how marginal revenue varies as output varies
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Break-even price
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the market price at which a firm earns zero profits.
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shut-down price
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equal to minimum average variable cost (A firm will cease production in the short run if the market falls)
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Short-run individual supply curve
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Shows how an individual producer's profit-maximizing output quantity depends on the market price, taking fixed cost as given.
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industry supply curve
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shows the relationship between the price of a good and the total output of the industry as a whole
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Short-run industry supply curve
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Shows how the quantity supplied by an industry depends on the market price given a fixed number of producers.
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short-run market equilibrium
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when the quantity supplied equals the quantity demanded, taking the number of producers as given
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Long-run market equilibrium
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When the quantity supplied equals the quantity demanded, given that sufficient time has elapsed for entry into and exit from the industry to occur.
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Long-run industry supply curve
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Shows how the quantity supplied responds to the price once producers have had time to enter or exit the industry.
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