Learning Outcomes
As a result of watching this programme you should be able to:
  • Know the meaning of the following terms: perfect competition, normal profit, and accounting profit.
  • Understand why perfectly competitive firms can make profits or losses in the short run.
  • Appreciate why in the long run perfect competition tends to lead to firms breaking even.
  • Be aware of the importance of profit in a market system.
  • Understand the importance of the perfectly competitive system in understanding the role of markets in society.
  • Abnormal profit: The level of profit which is in excess of the income required to pre­vent a firm from switching its resources to an alternative use. It is also known as super­normal profit
  • Allocative efficiency: Refers to a situation in which the output of each good in an eco­nomy is at a level which reflects the preference of consumers. Marginal social cost of production will equal marginal social benefit.
  • Average revenue: Revenue per unit of output, calculated as total revenue received for selling a product or service divided by the number of units produced.
  • Constant cost industry. An industry where when demand increases, the long run price does not change.
  • Cost efficiency. This is achieved when a firm produces a given amount of output at the minimum cost possible, given input prices and the state of technology.
  • Decreasing cost industry. An industry where when demand increases, the long run price falls.
  • Efficiency: Efficiency is achieved when resources are being used in an optimal way. There are several aspects to efficiency; principally they are technical, cost and allocative efficiency. See also Technical efficiency, Cost efficiency, Allocative efficiency. 
  • Increasing cost industry. An industry where when demand increases, the long run price rises.
  • Marginal revenue: The change in total revenue received by a firm as a result of a one unit change in its output.
  • Monopolistic Competition. A market structure where there are many firms producing a differentiated product and there are no significant entry barriers.
  • Monopoly: A market structure where one firm produces all of the industry's output.
  • Normal profit: The income to a firm which is just sufficient to cover the opportunity cost of its resources. In other words it is just enough income to make the firm will­ing to keep its resources in their present use
  • Oligopoly: A market structure in which there are only a few large suppliers of a prod­uct and usually substantial entry barriers
  • Perfect competition: A theoretical market structure in which there are many firms each of which is too small to influence price and where there are no barriers to exit or entry. Such firms are price-takers in that they must take the price given by the mar­ket rather than set their own price
  • Profit: The difference between the revenue received by a firm for selling its output and the cost of producing the output.
  • Shut-down point: The price at which a firm will shut down its operations in the short run because it thereby makes less of a loss than if it continued to produce. This occurs when price is at minimum average variable cost.
  • Supernormal profit: See Abnormal profit.
  • Supply curve: A graphical representation of the relationship which exists at any one time between plans to offer a good or service for sale and its price, ceteris paribus.
  • Technical efficiency: This is achieved when a firm produces a given level of output such that it cannot do so using less of one resource without using more of another.
Last modified: Monday, February 17, 2020, 7:30 PM