Economics: Perfect Competition Overview

A group of producers creating similar products. Think of the car industry, where Ford, Toyota, and Honda all make cars.

Where buyers and sellers interact to exchange products and services.

A market where many sellers offer identical products, with easy entry and exit for new firms. Example: wheat.

A market with only a few dominant firms, each having a significant market share. Think of the soft drink industry.

A market with multiple sellers offering slightly different products, with easy entry and exit. Example: convenience stores.

A market with a single seller, often with significant barriers to entry. Example: public utilities.

The break-even point occurs when total revenue (TR) equals total cost (TC). At this point, the firm is earning zero profit. In the table provided, the break-even points are at a quantity of 5 units and 7 units, where total revenue equals total cost.

The profit-maximizing level of output occurs where the difference between total revenue (TR) and total cost (TC) is the greatest. This is also known as the point of maximum profit. In the table provided, the profit-maximizing level of output is at a quantity of 6 units, where the difference between total revenue and total cost is the largest.

A market structure where a single firm has minimal impact on overall supply, making the market price their constant demand.

The revenue generated from selling a specific quantity of goods.

The revenue earned per unit of goods sold.

The additional revenue gained by selling one more unit of goods.

In a perfectly competitive market, the price of the good, the average revenue, and the marginal revenue are all equal.

The difference between total revenue and total costs.

When Total Revenue (TR) minus Total Cost (TC) is at its highest point.

When Total Revenue (TR) and Total Costs (TC) are equal, resulting in no profit or loss.

The total cost incurred to produce specific output level.

The amount of revenue earned per unit sold.

The difference between total revenue (TR) and total cost (TC). It represents the profit of a company from selling a specific amount of its product.

The quantity of output produced and sold by a company.

Cost of production that does not change with the level of production.

Cost of production that varies with the level of production.

If the cost of producing a good increases, the long-run supply curve will slope upwards. This is because higher costs mean producers are less willing to supply the good at each price level.

If the cost of producing a good decreases, the long-run supply curve will slope downwards. Lower costs mean producers are more willing to supply the good at each price level.

If production costs remain unchanged, the long-run supply curve will be flat. This means the quantity supplied remains the same regardless of price changes.

In a perfectly competitive market, firms enter and exit industries based on profitability. When profits are high, new firms enter, increasing supply and pushing prices down. When profits are low, firms exit, decreasing supply and pushing prices up. This dynamic ensures that prices in the long run will gravitate towards the minimum average cost of production.

The long-run supply curve shows the relationship between price and the quantity supplied by all firms in the industry when all firms are operating at their optimal scale. It's derived by aggregating the individual supply curves of each firm in the industry, taking into account potential entry and exit of firms.

A situation in which buyers and sellers in a market are not able to influence the price. Both must accept the existing market price.

A form of oligopoly where firms sell products that are very similar. It's often characterized by intense price competition.

A market structure with a small number of firms selling differentiated products. Firms have some control over price and compete on factors like branding and advertising.

A situation where a product is not differentiated. Buyers see no difference between products from different sellers.

How easily new firms can enter or existing firms can exit a market. Low barriers make it easier, while high barriers create stronger incumbents.