Micro CH9

price takers

sellers who must take the market price in order to sell their product. Because each price taker's output is small relative to the total market, price takers can sell all their output at the market price, but they are unable to sell any of their output at

price searchers

firms that face a downward-sloping demand curve for their product. The amount the firm is able to sell is inversely related to the price it charges

competition as a dynamic process

rivalry or competitiveness between or among parties (for example, producers or input suppliers) to deliver a better deal to buyers in terms of quality, price, and product information

pure competition

a market structure characterized by a large number of small firms producing an identical product in an industry (market area) that permits complete freedom of entry and exit. Also called price-taker markets

barriers to entry

obstacles that limit the freedom of potential rivals to enter and compete in an industry or market

marginal revenue (MR)

the incremental change in total revenue derived from the sale of one additional unit of a product.
MR = change in total revenue / change in output


a temporary halt in the operation of a firm. Because the firm anticipates operating in the future, it does not sell its assets and go out of business. The firm's variable cost is eliminated by the shutdown, but its fixed costs continue

going out of business

the sale of a firm's assets and its permanent exit from the market. By going out of business, a firm is able to avoid its fixed costs, which would continue during a shutdown

constant-cost industry

an industry for which factor prices and costs of production remain constant as market output is expanded. The long-run market supply curve is therefore horizontal in these industries

increasing-cost industry

an industry for which costs of production rise as output is expanded. In these industries, even in the long run, higher market prices will be needed to induce firms to expand total output. As a result, the long-run market supply curve in these industries

decreasing-cost industries

an industry for which costs of production decline as the industry expands. The market supply is therefore inversely related to price. Such industries are atypical