Key Terms
Market structure
The conditions of an industry - number of sellers, ease of entry, type of products sold.
Perfect competition
Many competitors selling identical products; no single firm has market power.
Price taker
A firm in perfect competition that must accept the prevailing market price.
Profit
Total Revenue minus Total Cost.
Marginal revenue (MR)
The additional revenue from selling one more unit. Formula: change in TR divided by change in quantity.
Marginal cost (MC)
The additional cost of producing one more unit.
Formula
Change in TC divided by change in quantity.
Entry
The long-run process of new firms joining an industry in response to profits.
Exit
The long-run process of firms leaving an industry in response to sustained losses.
Long-run equilibrium
P = MR = MC = AC
Zero economic profit
The firm is covering ALL costs including opportunity costs. This is also called normal profit.
Constant cost industry
An industry where firm size provides no cost advantage. Large and small firms face the same average costs.
Acronym from the source
MR. DARP Marginal Revenue = Demand = Average Revenue = Price All four are the same horizontal line for a perfectly compe
Short run
At least one input is fixed. Firms can adjust output but cannot change all inputs or freely enter/exit.
Long run
All inputs are variable. Firms can enter, exit, expand, or shrink completely.