Perfectly Competitive Market

1) many buyers and sellers 2) all firms selling identical products 3) no barriers to new firms entering the market

A buyer or seller that is unable to affect the market price.

Total revenue minus total cost. Profit = TR - TC

Price multiplied by quantity, units or output produced. TR=P x Q

Total revenue divided by the number of units sold. TR/Q=PxQ/Q=P

Change in total revenue from selling one more unit

1) continue to produce (TR>VC) 2) stop production by shutting down temporarily

a cost that has already been paid and that canot be recovered

The minimum point on a firm's average variable cost curve; if the price falls below this point, the firm shuts down production in the short run.

The situation in which the entry and exit of firms have resulted in the typical firm just breaking even.

The situation where every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it. For allocative efficiency to hold, firms must charge a price equal to marginal cost.

The situation where every good or service is produced at the lowest possible cost. For productive efficiency to hold, firms must produce at the minimum point of average total cost.