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21 Cards in this Set
- Front
- Back
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perfect competition
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product market characterized by a large number of firms, identical products, perfect information, no strategic behavior, a free flow of resources into and out of the industry, and prices and quantities determined by the Laws of Supply and Demand
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individual firm's supply curve
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output that a competitive firm is willing and able to supply at every price; alternatively, a competitive firm's marginal cost curve above the minimum of its average variable cost curve
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market supply curve
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short-run - horizontal summation of the individual firms' supply or marginal cost curves, above the minimum average variable cost
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sunk cost
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firm's fixed cost in the short run, arising from decisions about factors of production that were made in the past
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shut-down point
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market situation in which a firm's total revenue equals its short-run variable cost (price equals average variable cost), so that the firm is indifferent between producing and not producing
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break-even point
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market situation in which a firm's total revenue equals its long-run total cost (price equals long-run average cost), so that economic profit is zero
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average fixed cost
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at every output, the firm's fixed cost divided by its output
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average (total) cost
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at every output, the firm's total cost divided by its output
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average variable cost
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at every output, the firm's variable cost divided by its output
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profit-maximizing supply rule
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a perfectly competitive firm supplies the output at which price equals marginal cost as long as price is greater than (short-run) average variable cost
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minimum efficient scale of operation (MES)
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minimum of the long-run average cost curve; alternatively, the output at which economies of scale end and diseconomies of scale begin
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market supply curve
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long-run - total quantity supplied by the firms in the market at each price, when each firm is producing at the MES, the minimum of its long-run average cost
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constant cost industry
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industry in which the minimum long-run average total cost of the firms remains constant no matter how much output is supplied to the market, so that the long-run market supply curve is horizontal
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increasing cost industry
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an industry in which the minimum long-run average cost of the firms increases as output supplied to the market increases, so that the long-run market supply curve is upward sloping
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decreasing cost industry
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industry in which the minimum long-run average cost of the firms decreases as output supplied to the market increases, so that the long-run market supply curve is downward sloping
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momentary run
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time period during which changing the market conditions catch the firms by surprise and they are unable to change their supply of output to the market
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allocational efficiency
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achieved in a product market when the quantity exchanged in the market maximizes the net value of producing and consuming a good; the market test is price equal to short-run marginal cost
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production (technical) efficiency
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achieved when the output supplied to the market uses the least amount of society's scarce resources; market test is that each firm produces in the long run at the minimum of its long-run average cost curve, the minimum efficient scale of operation (MES)
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equity
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context of product markets, the presence of equality of opportunity and horizontal equity; the inability of firms to maintain economic profits in the long run
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equality of opportunity
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all investors have equal access to profitable market opportunities because of the absence of barriers to entry and equal access to all relevant market information
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horizontal equity
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all owners of firms earn the same return to their capital in the long run (standardizing for risk)
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