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Key Terms and Concepts: Chapter 7 Average Revenue Total Revenue divided by Quantity sold. When all sales are at a single price, average revenue equals price. Break-Even Price The price at which total revenue equals total cost (economic cost). Price equals Average Cost. Constant Cost Industry An industry whose long-run supply curve is horizontal. Consumers' Surplus The difference between the maximum consumers are willing to pay for a given amount of a good or service and the amount they do pay per period. Decreasing Cost Industry An industry whose long-run supply curve is downward sloping. Economic Capacity Operation of a firm or plant at the scale such that average cost is minimized. Excludable Product A good whose characteristic is such that the right to the good is clearly defined and others can easily be excluded from its use. External Economy Firm costs are inversely related to the size of the industry's output. External Diseconomy Firm costs are directly related to the size of the industry's output. Identical Products Products such that in the eyes of the consumer they are the same, even if they are sold by different vendors. Imperfect Competition Market structures other than perfect competition. Increasing Cost Industry An industry whose long-run supply curve is upward sloping. Long-run Market Supply A curve showing the relationship between price and the output that all sellers, existing and potential, will supply after all long-run adjustments are made. Profits are zero along the LRS. Marginal Revenue The change in Total Revenue divided by the change in Quantity sold. In perfect competition, marginal revenue equals price. Market Power The ability of the buyer or seller to manipulate the terms of trade, usually price, to their advantage. Market Structure A classification system for the key traits of a market including the number of buyers and sellers, the type of product bought and sold, and the ease of entry or exit into and from the market. Monopoly A market with only one seller. Perceived Demand The demand as seen by the seller. Perfect Competition A market in which all goods are perfect substitutes, there are no barriers to entry or exit, buyers and sellers are price takers, and have enough information to make informed decisions. Price Searcher A buyer or seller who can affect the market price by their decision to buy or sell. Price Taker A buyer or seller with no influence over the market price. Producers' Surplus The difference between the minimum sellers must have in compensation for a given amount of a good or service and the amount they do receive per period. Profit Maximization Rule Profits are maximized at a positive rate of output when marginal revenue equals marginal cost. Quantity Adjuster A buyer or seller who is a price taker can only decide how much to buy or sell per period. Rent Seeking Behavior The nonproductive use of resources by buyers or sellers with market power to preserve that power. Rival Products A good whose characteristic is such that the use or consumption of the good precludes others from using or consuming the good. Shut Down Price The price, in the short-run, below which it is less costly for the seller to exit rather than remain in the market. Price equals average variable cost. Social Surplus The surplus that accrues to society due to a given level of an activity or transaction. When there is no divergence between private and social benefits and costs, social surplus is the sum of consumer and producer surplus. Short-run Market Supply The horizontal summation of all firms' short-run supply curves. Total Revenue Price times Quantity sold