Total revenue minus total cost.Profit = TR - TC
  • sunk cost
  • Average revenue (AR)
  • price taker
  • Profit
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.
  • allocative efficiency
  • Shutdown point
  • productive efficiency
  • Long-run Competitive Equilibrium
1) continue to produce (TR>VC)2) stop production by shutting down temporarily
  • sunk cost
  • Long-run Competitive Equilibrium
  • options for firms suffering losses (SHORT RUN)
  • conditions of a perfectly competitive market
A buyer or seller that is unable to affect the market price.
  • Average revenue (AR)
  • sunk cost
  • price taker
  • Marginal revenue (MR)
Price multiplied by quantity, units or output produced. TR=P x Q
  • Marginal revenue (MR)
  • price taker
  • Average revenue (AR)
  • Total Revenue (TR)
1) many buyers and sellers2) all firms selling identical products3) no barriers to new firms entering the market
  • Long-run Competitive Equilibrium
  • conditions of a perfectly competitive market
  • options for firms suffering losses (SHORT RUN)
  • Shutdown point
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.
  • Marginal revenue (MR)
  • Long-run Competitive Equilibrium
  • allocative efficiency
  • productive efficiency
The situation in which the entry and exit of firms have resulted in the typical firm just breaking even.
  • allocative efficiency
  • Shutdown point
  • Long-run Competitive Equilibrium
  • productive efficiency
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