8.8 Key Terms
Key Terms
It is very easy for firms to start and stop selling in this market. For example, if a farmer decides to plant corn instead of soybeans, there is nothing preventing them from doing so. 8.1
Identical goods mean there is nothing to distinguish one firm’s goods from another. For example corn – once all the corn is dumped into the grain elevator there is absolutely no way to tell from which farm a particular kernel of corn came. 8.1
Where firms continue to produce as long as the price equals the average total cost, ending in zero economic profits
Many firms, mean that from the perspective of one individual firm there is no way to raise or lower the market price for a good. This is because the individual firm’s output is such a small part of the overall market that it does not make a difference in terms of price. 8.1
This shows the additional revenue gained from selling one more unit. As mentioned before, a firm in perfect competition faces a perfectly elastic demand curve for its product—that is, the firm’s demand curve is a horizontal line drawn at the market price level.8.2
In which firms and consumers interact. There are three main metrics by which we measure a market’s structure: (8.0)
The number of firms. More firms mean more competition and more places to which consumers can turn to purchase a good.
The similarity of goods: The more similar the goods sold in the market the more easily consumers can switch firms and the more competitive the market is.
The barriers to entry: The more difficult is it to enter a market for a new firm, the less competitive it is.
Meaning that their decision is simply how much to sell at the market price. If they try and sell for a higher price, no one will buy from them, and they could sell for a lower price, but if they did so, they would only be hurting themselves because it would not affect the quantity sold. 8.1
The point at which level the firm is indifferent between producing the loss minimizing output or shutting down.
