Skip to main content
Social Sci LibreTexts

9.8: Key Terms

  • Page ID
    108433
  • \( \newcommand{\vecs}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } \) \( \newcommand{\vecd}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash {#1}}} \)\(\newcommand{\id}{\mathrm{id}}\) \( \newcommand{\Span}{\mathrm{span}}\) \( \newcommand{\kernel}{\mathrm{null}\,}\) \( \newcommand{\range}{\mathrm{range}\,}\) \( \newcommand{\RealPart}{\mathrm{Re}}\) \( \newcommand{\ImaginaryPart}{\mathrm{Im}}\) \( \newcommand{\Argument}{\mathrm{Arg}}\) \( \newcommand{\norm}[1]{\| #1 \|}\) \( \newcommand{\inner}[2]{\langle #1, #2 \rangle}\) \( \newcommand{\Span}{\mathrm{span}}\) \(\newcommand{\id}{\mathrm{id}}\) \( \newcommand{\Span}{\mathrm{span}}\) \( \newcommand{\kernel}{\mathrm{null}\,}\) \( \newcommand{\range}{\mathrm{range}\,}\) \( \newcommand{\RealPart}{\mathrm{Re}}\) \( \newcommand{\ImaginaryPart}{\mathrm{Im}}\) \( \newcommand{\Argument}{\mathrm{Arg}}\) \( \newcommand{\norm}[1]{\| #1 \|}\) \( \newcommand{\inner}[2]{\langle #1, #2 \rangle}\) \( \newcommand{\Span}{\mathrm{span}}\)\(\newcommand{\AA}{\unicode[.8,0]{x212B}}\)

    Perfect competition: an industry in which many suppliers, producing an identical product, face many buyers, and no one participant can influence the market.

    Profit maximization is the goal of competitive suppliers – they seek to maximize the difference between revenues and costs.

    Marginal revenue is the additional revenue accruing to the firm resulting from the sale of one more unit of output.

    Shut-down price corresponds to the minimum value of the AVC curve.

    Break-even price corresponds to the minimum of the ATC curve.

    Short-run supply curve for perfect competitor: the portion of the MC curve above the minimum of the AVC.

    Industry supply (short run) in perfect competition is the horizontal sum of all firms' supply curves.

    Short-run equilibrium in perfect competition occurs when each firm maximizes profit by producing a quantity where P=MC.

    Economic (supernormal) profits are those profits above normal profits that induce firms to enter an industry. Economic profits are based on the opportunity cost of the resources used in production.

    Long-run equilibrium in a competitive industry requires a price equal to the minimum point of a firm's ATC. At this point, only normal profits exist, and there is no incentive for firms to enter or exit.

    Industry supply in the long run in perfect competition is horizontal at a price corresponding to the minimum of the representative firm's long-run ATC curve.

    Increasing (decreasing) cost industry is one where costs rise (fall) for each firm because of the scale of industry operation.


    This page titled 9.8: Key Terms is shared under a CC BY-NC-SA 4.0 license and was authored, remixed, and/or curated by Douglas Curtis and Ian Irvine (Lyryx) via source content that was edited to the style and standards of the LibreTexts platform; a detailed edit history is available upon request.