Key Terms

break even point: level of output where the marginal cost curve intersects the average cost curve at the minimum point of AC; if the price is at this point, the firm is earning zero economic profits

entry: the long-run process of firms entering an industry in response to industry profits

exit: the long-run process of firms reducing production and shutting down in response to industry losses

long-run equilibrium: where all firms earn zero economic profits producing the output level where P = MR = MC and P = AC

marginal revenue: the additional revenue gained from selling one more unit

market structure: the conditions in an industry, such as number of sellers, how easy or difficult it is for a new firm to enter, and the type of products that are sold

perfect competition: each firm faces many competitors that sell identical products

price taker: a firm in a perfectly competitive market that must take the prevailing market price as given

shutdown point: level of output where the marginal cost curve intersects the average variable cost curve at the minimum point of AVC; if the price is below this point, the firm should shut down immediately

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