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Four Market Model Summary: Perfect Competition definitions

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  • Perfect Competition
    A market structure with countless firms, identical products, and no single firm able to influence price.
  • Price Taker
    A firm that must accept the market price, unable to set its own due to intense competition.
  • Barriers to Entry
    Obstacles preventing new firms from joining a market, absent in this structure.
  • Marginal Revenue
    The additional income from selling one more unit, equal to price in this market.
  • Marginal Cost
    The extra expense of producing one more unit, used to determine optimal output.
  • Profit Maximizing Quantity
    The output level where additional revenue from selling equals the extra cost of producing.
  • Long-Run Equilibrium
    A state where firms earn zero economic profit and price matches average total cost.
  • Economic Profit
    Total revenue minus all costs, including opportunity costs; zero in the long run here.
  • Average Total Cost
    Total cost divided by output, equal to price in long-run equilibrium.
  • Allocative Efficiency
    A condition where resources are distributed so that price equals marginal cost.
  • Productive Efficiency
    A situation where goods are produced at the lowest possible cost, at minimum average total cost.
  • Average Revenue
    Revenue per unit sold, identical to price in this market structure.
  • Supply
    The total amount of a good firms are willing to sell at various prices in the market.
  • Demand
    The total amount of a good consumers are willing to buy at various prices in the market.