Perfect Competition

Vocabulary

accounting profit

the amount left over from total revenue once explicit cost is subtracted
$\text{Accounting Profit}=\text{Total Revenue}-\text{Explicit Cost}$

allocative efficiency

economic state in which production matches consumer preference

demand curve

a line on a graph showing different combinations of quantities demanded and prices, which can also be used to show the maximum price that an individual consumer (or the demand side of the market) would be willing to pay

depreciation of assets

decrease in the value of assets

economic profit

the amount left over from total revenue once explicit and implicit costs are subtracted
$\text{Economic Profit} = \text{TR}-(\text{Explicit Cost} + \text{Implicit Cost})$

elastic

propensity for consumers to change demand based on price

equilibrium

state in which economic forces are in balance

explicit cost

a cost involving a payment

fixed cost

the cost of fixed inputs; does not change as output changes

implicit cost

a cost that does not require the buyer to pay cash, or that cannot easily be assigned a monetary value

marginal cost (MC)

the additional cost that a firm incurs by producing an additional unit of output, which must be covered in order to remain operational in the short run

marginal revenue

the revenue earned by selling one additional unit of a good

market power

the ability of a supplier to set the market price and control the amount of the good/service available to consumers

normal profit

economic situation wherein a firm's total revenue is equal to its total cost

opportunity cost

the value or benefit of the next best alternative given up when making a choice

perfect knowledge

theoretical state in which all participants in a market know everything about price, supply, and so on

price taker

company that must accept the market price for goods and services

productive efficiency

situation in which the maximum possible production of one good is achieved without harming production of another good

supply curve

a graphical representation that shows the quantity supplied at different prices, which can also be used to show the maximum amount of a good or service that an individual producer (or the supply side of the market) would be willing to produce

variable cost

the cost of variable inputs; changes as output changes