AP Microeconomics Flashcards: Perfect Competition

What this deck covers

This deck focuses on Perfect Competition, giving you a quick way to review the definitions, rules, and examples that matter most for AP Microeconomics.

How to use these flashcards

Work through these flashcards in short sessions. Try to answer each prompt before flipping the card, then revisit any cards you miss until the explanation feels automatic.

Flashcard 1: State the effect of an increase in production costs on supply.

Answer: Supply decreases. Higher costs shift supply curve left, reducing quantity supplied.

Flashcard 2: Choose the characteristic of perfect competition affecting entry and exit.

Answer: Free entry and exit. No barriers prevent firms from entering or leaving the market.

Flashcard 3: Identify the relationship between price and marginal cost in long-run equilibrium.

Answer: $P = MC$. Resources allocated efficiently when price equals marginal cost.

Flashcard 4: State the profit-maximizing condition in perfect competition.

Answer: $MR = MC$. Maximizes profit where additional revenue equals additional cost.

Flashcard 5: What determines the firm's output decision in the short run?

Answer: MC and MR relationship. Firms produce where marginal cost equals marginal revenue.

Flashcard 6: Identify the effect on market price when firms exit an industry.

Answer: Market price increases. Fewer firms producing reduces market supply, raising price.

Flashcard 7: What happens to market supply if new firms enter the market?

Answer: Market supply increases. More firms producing increases total market supply.

Flashcard 8: What is the condition for shutdown in the short run?

Answer: $P < AVC$. Firm cannot cover variable costs, so it should stop production.

Flashcard 9: State the effect on price when market demand increases.

Answer: Price increases. Higher demand shifts demand curve right, raising equilibrium price.

Flashcard 10: What is the firm's supply curve in perfect competition?

Answer: MC curve above AVC. Firm only produces where it can cover variable costs.

Flashcard 11: What is the formula for calculating average total cost?

Answer: $ATC = \frac{TC}{Q}$. Average cost calculated by dividing total cost by quantity.

Flashcard 12: What is the long-run effect of economic profits in the industry?

Answer: Entry of new firms. Profits attract new competitors, increasing market supply.

Flashcard 13: State the effect on price when market demand increases.

Answer: Price increases. Higher demand shifts demand curve right, raising equilibrium price.

Flashcard 14: Calculate average fixed cost if $FC = 100$ and $Q = 20$.

Answer: $AFC = 5$. Average fixed cost equals $\frac{FC}{Q} = \frac{100}{20}$.

Flashcard 15: Determine the result if $P = AVC$ in the short run.

Answer: Indifference between operating and shutting down. Firm is exactly at the shutdown point.

Flashcard 16: What is a characteristic of a perfectly competitive market?

Answer: Many buyers and sellers. Ensures no single buyer or seller can influence market price.

Flashcard 17: Identify the market adjustment if $P < ATC$.

Answer: Firms exit the market. Losses cause firms to leave, reducing market supply.

Flashcard 18: Identify the condition for normal profit in perfect competition.

Answer: $P = ATC$. Firm earns exactly normal profit when price equals average total cost.

Flashcard 19: What is the firm's supply curve in perfect competition?

Answer: MC curve above AVC. Firm only produces where it can cover variable costs.

Flashcard 20: What is the formula for calculating economic profit?

Answer: Economic Profit = $TR - TC$. Profit equals total revenue minus total costs.

Flashcard 21: What does the supply curve for a competitive firm correspond to?

Answer: MC above AVC. Firm supplies where marginal cost exceeds average variable cost.

Flashcard 22: Find the average revenue when total revenue is $500$ and output is $50$ units.

Answer: $AR = 10$. Average revenue calculated as $\frac{TR}{Q} = \frac{500}{50}$.

Flashcard 23: Identify the result if $P < ATC$ and $P > AVC$.

Answer: Operate at a loss. Firm covers variable costs but not all fixed costs.

Flashcard 24: What is the effect on firm supply if technological advancements occur?

Answer: Firm supply increases. Lower production costs shift supply curve right.

Flashcard 25: Identify the relationship between average revenue and price.

Answer: $AR = P$. In perfect competition, average revenue equals market price.

Flashcard 26: State the condition when firms in perfect competition achieve allocative efficiency.

Answer: $P = MC$. Resources allocated efficiently when price equals marginal cost.

Flashcard 27: Determine the result if $P < AVC$ in the short run.

Answer: Shutdown. Firm minimizes losses by ceasing production when price is too low.

Flashcard 28: Identify the outcome when firms in perfect competition earn zero economic profit.

Answer: Long-run equilibrium. Firms earn normal profit when economic profit equals zero.

Flashcard 29: Identify the outcome when firms in perfect competition earn zero economic profit.

Answer: Long-run equilibrium. Firms earn normal profit when economic profit equals zero.

Flashcard 30: What is the formula for calculating average total cost?

Answer: $ATC = \frac{TC}{Q}$. Average cost calculated by dividing total cost by quantity.

Flashcard 31: Choose the characteristic of perfect competition affecting entry and exit.

Answer: Free entry and exit. No barriers prevent firms from entering or leaving the market.

Flashcard 32: Identify the market adjustment if $P < ATC$.

Answer: Firms exit the market. Losses cause firms to leave, reducing market supply.

Flashcard 33: What ensures productive efficiency in perfect competition?

Answer: Producing at minimum ATC. Firms produce at lowest possible average total cost.

Flashcard 34: What is the profit outcome if $TR = TC$?

Answer: Zero economic profit. Total revenue exactly equals total costs.

Flashcard 35: What is the long-run effect of economic profits in the industry?

Answer: Entry of new firms. Profits attract new competitors, increasing market supply.

Flashcard 36: What is a characteristic of a perfectly competitive market?

Answer: Many buyers and sellers. Ensures no single buyer or seller can influence market price.

Flashcard 37: What determines the firm's output decision in the short run?

Answer: MC and MR relationship. Firms produce where marginal cost equals marginal revenue.

Flashcard 38: What is the profit outcome if $TR = TC$?

Answer: Zero economic profit. Total revenue exactly equals total costs.

Flashcard 39: State the condition when firms in perfect competition achieve allocative efficiency.

Answer: $P = MC$. Resources allocated efficiently when price equals marginal cost.

Flashcard 40: What is the formula for total revenue in perfect competition?

Answer: $TR = P \times Q$. Revenue equals price times quantity sold.

Flashcard 41: What does the supply curve for a competitive firm correspond to?

Answer: MC above AVC. Firm supplies where marginal cost exceeds average variable cost.

Flashcard 42: Identify the result if $P < ATC$ and $P > AVC$.

Answer: Operate at a loss. Firm covers variable costs but not all fixed costs.

Flashcard 43: Find the average revenue when total revenue is $500$ and output is $50$ units.

Answer: $AR = 10$. Average revenue calculated as $\frac{TR}{Q} = \frac{500}{50}$.

Flashcard 44: What is the effect on firm supply if technological advancements occur?

Answer: Firm supply increases. Lower production costs shift supply curve right.

Flashcard 45: What ensures allocative efficiency in perfect competition?

Answer: $P = MC$. Resources allocated optimally when price equals marginal cost.

Flashcard 46: Identify the relationship between average revenue and price.

Answer: $AR = P$. In perfect competition, average revenue equals market price.

Flashcard 47: Calculate average fixed cost if $FC = 100$ and $Q = 20$.

Answer: $AFC = 5$. Average fixed cost equals $\frac{FC}{Q} = \frac{100}{20}$.

Flashcard 48: What happens to market supply if new firms enter the market?

Answer: Market supply increases. More firms producing increases total market supply.

Flashcard 49: Identify the condition for normal profit in perfect competition.

Answer: $P = ATC$. Firm earns exactly normal profit when price equals average total cost.

Flashcard 50: Identify the impact of perfect competition on consumer surplus.

Answer: Maximized. Perfect competition achieves maximum possible consumer welfare.

Flashcard 51: What happens to profits if $P > ATC$ in perfect competition?

Answer: Economic profit. Firm earns above-normal profits when price exceeds average total cost.

Flashcard 52: Identify the impact of perfect competition on consumer surplus.

Answer: Maximized. Perfect competition achieves maximum possible consumer welfare.

Flashcard 53: What is the formula for total revenue in perfect competition?

Answer: $TR = P \times Q$. Revenue equals price times quantity sold.

Flashcard 54: Identify the relationship between price and marginal cost in long-run equilibrium.

Answer: $P = MC$. Resources allocated efficiently when price equals marginal cost.

Flashcard 55: Which condition indicates a firm is a price taker?

Answer: Market sets price; firm accepts it. Firm has no control over price, only quantity decisions.

Flashcard 56: Calculate marginal cost if $TC$ rises from $100$ to $150$ with $10$ units.

Answer: $MC = 5$. Marginal cost equals $\frac{\Delta TC}{\Delta Q} = \frac{50}{10}$.

Flashcard 57: State the profit-maximizing condition in perfect competition.

Answer: $MR = MC$. Maximizes profit where additional revenue equals additional cost.

Flashcard 58: Calculate marginal cost if $TC$ rises from $100$ to $150$ with $10$ units.

Answer: $MC = 5$. Marginal cost equals $\frac{\Delta TC}{\Delta Q} = \frac{50}{10}$.

Flashcard 59: Determine the result if $P < AVC$ in the short run.

Answer: Shutdown. Firm minimizes losses by ceasing production when price is too low.

Flashcard 60: What ensures allocative efficiency in perfect competition?

Answer: $P = MC$. Resources allocated optimally when price equals marginal cost.

Flashcard 61: What is the shape of the demand curve for a perfectly competitive firm?

Answer: Perfectly elastic. Firm can sell any quantity at market price.

Flashcard 62: What is the shape of the demand curve for a perfectly competitive firm?

Answer: Perfectly elastic. Firm can sell any quantity at market price.

Flashcard 63: What happens to profits if $P > ATC$ in perfect competition?

Answer: Economic profit. Firm earns above-normal profits when price exceeds average total cost.

Flashcard 64: Which condition indicates a firm is a price taker?

Answer: Market sets price; firm accepts it. Firm has no control over price, only quantity decisions.

Flashcard 65: What ensures productive efficiency in perfect competition?

Answer: Producing at minimum ATC. Firms produce at lowest possible average total cost.

Flashcard 66: What is the condition for shutdown in the short run?

Answer: $P < AVC$. Firm cannot cover variable costs, so it should stop production.

Flashcard 67: State the effect of an increase in production costs on supply.

Answer: Supply decreases. Higher costs shift supply curve left, reducing quantity supplied.

Flashcard 68: Identify the effect on market price when firms exit an industry.

Answer: Market price increases. Fewer firms producing reduces market supply, raising price.

Flashcard 69: Determine the result if $P = AVC$ in the short run.

Answer: Indifference between operating and shutting down. Firm is exactly at the shutdown point.