economics, perfect competition

A market where a large number of buyers and sellers interact, leading to a single market price for an identical product. No single buyer or seller can influence the market price.

Buyers in a perfectly competitive market cannot differentiate between products from different sellers. All products are identical.

A firm in perfect competition has no power to set its own price. It must accept the market price determined by supply and demand.

Firms in a perfectly competitive market can sell as much as they want at the prevailing market price. There is no incentive to lower their price.

If a firm in perfect competition tries to charge above the market price, it will lose all its customers. Consumers will buy from other firms offering the product at the lower market price.

The assumption of price taking applies to both firms and consumers in a perfectly competitive market.

A market situation where a single buyer dominates the market. This buyer has significant power to influence the price.

A situation where a single seller controls the entire market. This seller has significant control over the market price.

New firms can easily enter a market and existing firms can easily exit without significant barriers or obstacles. This ensures a large number of competitors and drives price towards equilibrium.

All firms in a perfectly competitive market aim to maximize their profits by producing and selling goods. No other motivations or goals are considered.

The absence of government interventions such as tariffs, taxes, subsidies, or price controls. It allows market forces to act freely and determine prices based on supply and demand.

All factors of production (like labor, capital, raw materials) are perfectly mobile and can move freely between different firms or industries. This means that firms can easily adjust their resources to maximize profits.

All buyers and sellers have complete knowledge about market conditions, including prices, product quality, and producer information. This leads to efficient allocation of resources and competitive pricing.

The ability of a firm to influence the market price of a product. This is typically observed in markets where a single firm dominates or there are very few firms.

A model that classifies markets based on the degree of competition, considering factors such as the number of firms, the ease of entry, product differentiation, and the nature of the demand curve.

A market structure characterized by many firms selling differentiated products. This allows for some level of market power, but is still competitive.

A market structure where a few firms dominate the market. These firms are interdependent, meaning their decisions affect the outcomes of other firms within the market.

The assumption that all firms in a market have access to the necessary information about prices, technology, and other market conditions, enabling them to make informed decisions.

A market situation where multiple firms offer products that are very similar or identical. This makes it difficult for a single firm to differentiate itself and increase its market share.

A competitive firm can sell as many units of output as it wants at the market price, as its demand curve is horizontal.

For a competitive firm, marginal revenue (MR) equals the market price (p), meaning each additional unit sold brings in an extra p amount of revenue.

A profit-maximizing competitive firm produces the quantity (q*) where its marginal cost (MC) equals the market price (p).

The second-order condition for profit maximization requires that the marginal cost (MC) curve be upward sloping at the profit-maximizing output (q*) and intersects the marginal revenue curve (MR) from below.

A competitive firm faces a horizontal demand curve representing the market price, allowing it to sell as many units as it desires at that price.

The marginal revenue curve (MR) is a horizontal line representing the market price for a competitive firm.

The point where the marginal cost (MC) curve intersects the marginal revenue (MR) curve represents the profit-maximizing output level for a competitive firm.

If a firm produces less than the profit-maximizing output, its marginal cost is below the market price, indicating an opportunity to increase profits by producing more. Conversely, if it produces more, its marginal cost exceeds the market price, and reducing output can lead to higher profits.

The difference between the market price (average revenue) and the average cost.

The profit earned by a firm when its average total cost (ATC) is below the market price.

The loss incurred by a firm when its average total cost (ATC) is above the market price.

The curve that shows the quantity a firm is willing to supply at each possible market price.

The curve that shows the total quantity supplied by all firms in an industry at each possible market price.

A long-run equilibrium where the price is equal to marginal cost and average total cost.

The difference between the maximum price consumers are willing to pay for a good and the market price.

The difference between the market price and the minimum price producers are willing to accept for a good.

The sum of consumer surplus and producer surplus.

The minimum amount a producer needs to receive per unit to cover their variable costs.

A single firm can increase its price without losing sales if consumers are unaware of identical products or prices offered by competitors.

Information in a perfectly competitive market is widely available and free of cost, allowing for informed decisions.

In a perfectly competitive market, future market developments are predictable, eliminating uncertainty for businesses.

The cost of facilitating transactions in a perfectly competitive market is minimal, including finding buyers and sellers, negotiating deals, and writing contracts.

The total revenue generated by a firm (TR) is calculated by multiplying the price of a product (P) by the quantity sold (Q). Formula: TR=P*Q.

Average revenue (AR) is the revenue earned per unit sold. It is calculated by dividing total revenue (TR) by the quantity sold (Q). Formula: AR = TR/Q

Marginal revenue (MR) is the change in total revenue that results from selling one additional unit of a product. It is calculated by dividing the change in total revenue (ΔTR) by the change in quantity (ΔQ). Formula: MR = ΔTR/ΔQ

In a perfectly competitive market, the industry's supply curve (S) represents the total quantity of a product that all firms are willing to supply at different prices.

In a perfectly competitive market, the industry's demand curve (D) represents the total quantity of a product that all consumers are willing and able to buy at different prices.

The equilibrium price (Pe) is the price at which the quantity supplied by firms (Qs) equals the quantity demanded by consumers (Qd) in a perfectly competitive market.

The firm's demand curve is perfectly elastic, implying that a firm can sell any quantity at the market price (Pe) without affecting the price. This is also known as the Average Revenue (AR) and Marginal Revenue (MR) curve.

The firm's supply curve is its marginal cost curve (MC) above the average variable cost (AVC) curve. This is the firm's short-run supply curve.

A firm earns supernormal profit when total revenue exceeds total cost in the short run, but at a market price below where marginal cost (MC) equals average total cost (AC). This allows firms to earn profits over and above the opportunity cost of their resources.