Economics Chapter 9: Competitive Markets

The demand curve for an individual firm in a perfectly competitive market, showing that the firm can sell any quantity at the prevailing market price.

The total revenue earned by a firm is calculated by multiplying the price per unit by the quantity sold.

The average revenue earned per unit sold is calculated by dividing total revenue by the quantity sold.

The additional revenue earned by selling one more unit of output.

In a perfectly competitive market, the average revenue (AR), marginal revenue (MR), and price (p) are all equal. This is because the firm can sell any quantity at the prevailing market price.

The degree to which individual firms have power over market prices. The less power a firm has, the more competitive the market.

How actively firms try to gain business from each other. It's not the same as market structure.

A firm's demand curve may be different than the entire industry's demand curve.

Market structure significantly impacts how efficiently a market operates.

A theoretical model describing a perfectly competitive market with many firms and no one firm having control over prices.

All firms sell identical products in a perfectly competitive market.

In a perfect competition market, customers are well-informed about product differences and prices.

Firms in a competitive market are so small relative to the whole industry that they have no impact on prices.

The quantity of output where a perfectly competitive firm maximizes its profits. At this point, the firm has no incentive to change its output.

The cost of producing one additional unit of output. It's the change in total cost divided by the change in output.

The average cost of producing each unit of output. It's calculated by dividing total cost by the quantity of output.

The portion of a perfectly competitive firm's marginal cost curve that lies above the average variable cost curve. It represents the firm's supply curve in the short run.

An industry that experiences a persistent reduction in demand, leading to a decrease in production and potential exit of firms.

The efficient response to a decline in demand is to keep operating with existing equipment as long as the revenue from selling each additional unit covers the variable cost of producing it.

In a declining industry, outdated equipment is often a consequence of reduced demand, rather than the initial cause of the decline.

The average cost per unit produced, calculated by dividing total cost by the quantity produced.

The horizontal summation of individual marginal cost (MC) curves above the minimum point of average variable cost (AVC) curves for all firms in a competitive market.

A situation where the market price in a competitive industry results in both market clearing (quantity supplied equals quantity demanded) and individual firms maximizing their profits at that price.

In short-run equilibrium, a firm's profits are zero when the market price equals its average total cost (ATC).

In short-run equilibrium, a firm's profits are positive when the market price is higher than its average total cost (ATC).

A market where many firms sell identical products and no single firm has market power.

The minimum cost per unit a firm can achieve in the short run. Below this point, the firm will shut down.

The point where the firm produces the quantity of output that maximizes its profits. This is where marginal cost (MC) intersects marginal revenue (MR).

When a firm's price (p) is below its average total cost (ATC), it experiences economic losses. The difference between ATC and p represents the amount of loss per unit.

A firm in a competitive market that minimizes its losses by producing at the point where marginal cost (MC) equals marginal revenue (MR) is known as a loss-minimizing firm. Even though the firm is losing money, it's still better than shutting down and losing even more.

A firm facing economic losses should consider exiting the industry, as continuing to operate would mean continuing to lose money. However, the decision to exit depends on whether the losses can be covered by fixed costs.

When new firms enter an industry, it is usually driven by the presence of positive economic profits in the market. This creates an opportunity for new firms to earn a profit.