01
Front
What characterizes a perfectly competitive market?
Back
It has many buyers and sellers, identical products, broad access to relevant market information, and free entry and exit.
Free Online Flashcard Deck
1 Competitive Markets and the Profit-Maximizing Firm Free Online FlashCards
Study 1 Competitive Markets and the Profit-Maximizing Firm with 12 free online flashcards. Review key terms, definitions, and concepts with this interactive flashcard deck.
12 cards
02
Front
Why is a firm in perfect competition a price taker?
Back
Each firm is small relative to the market, so it cannot meaningfully change the market price and must accept the price determined by market supply and demand.
03
Front
What does demand look like to an individual competitive firm?
Back
Demand is horizontal for the individual firm at the market price. Its main decision is how much to produce.
04
Front
How is a firm’s total revenue calculated?
Back
Total revenue is sales receipts: TR=P×Q, where P is price and Q is quantity sold.
05
Front
What is average revenue?
Back
Average revenue is revenue per unit: AR=TR/Q.
06
Front
How is marginal revenue defined?
Back
Marginal revenue is the extra revenue from selling more output: MR=ΔTR/ΔQ.
07
Front
How are price, average revenue, and marginal revenue related for a competitive firm?
Back
For a competitive firm, each unit sells at the market price, so P=AR=MR.
08
Front
How do fixed costs differ from variable costs?
Back
Fixed costs do not change with output during the period considered; variable costs change as output changes.
09
Front
How is total cost calculated?
Back
Total cost is the sum of fixed and variable costs: TC=FC+VC.
10
Front
How are average total, variable, and fixed costs calculated?
Back
They are cost per unit: ATC=TC/Q, AVC=VC/Q, and AFC=FC/Q.
11
Front
What does marginal cost measure?
Back
Marginal cost is the additional cost of producing more output: MC=ΔTC/ΔQ. Because fixed cost does not change with output, marginal cost reflects the change in variable cost.
12
Front
What costs are included in economic profit?
Back
Economic profit is TR−TC. Economic cost includes opportunity costs—the value of the next-best use of the firm’s resources—not just cash expenses.
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