AP Microeconomics AMSCO Guided Notes
3.7: Perfect Competition
AP Microeconomics Guided Notes
AMSCO 3.7 - Perfect Competition
Essential Questions
- What is a perfectly competitive market?
I. What Happens in Perfect Competition?
1. What is perfect competition and why do economists study this market model?
2. What does it mean for a firm to be a price taker and how does this differ from a price maker?
3. What barriers to entry exist in perfectly competitive markets?
II. What Does Perfect Competition Look Like?
1. What is equilibrium price and how is it determined in a perfectly competitive market?
2. What is the relationship between marginal revenue, demand, average revenue, and price in perfect competition?
III. Competitive Market Equilibrium
A. Short-Run Market Equilibrium
1. What is short-run market equilibrium and how do price fluctuations affect firm behavior?
B. Long-Run Market Equilibrium
1. What conditions define long-run market equilibrium and what is the economic profit level for firms?
2. What are the three types of industries based on how production costs change and how do they affect long-run prices?
IV. Efficiencies
A. Allocative Efficiency
1. What is allocative efficiency and what condition must be met for a firm to achieve it?
B. Productive Efficiency
1. What is productive efficiency and what does it mean for firms to produce at an efficient scale?
V. Marginal Costs and Benefits
1. What is private marginal benefit and how is it measured?
2. What is private marginal cost and how does it relate to production decisions?
3. How do prices in perfectly competitive markets provide information and incentives to both consumers and producers?
Key Terms
perfect competition
price takers
price makers
equilibrium price
equilibrium market quantity
equilibrium market price
market equilibrium
short-run market equilibrium
long-run market equilibrium
allocative efficiency
efficient scale
private marginal benefit
private marginal cost
marginal cost of production