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Perfect Competition
| Question | Answer |
|---|---|
| Assumptions/Characteristics of Perfect Competition | Many buyers in the market, Many competitive sellers in the market, Goods are homogenous, Freedom to entry and exit from the industry/No barriers to entry or exit within the industry, Perfect knowledge exists as to prices and profits, Each firm seeks to ma |
| Example of perfect competition | Fruit and vegetable vendors in local markets. (English Market) |
| Why don’t firms engage in advertising? | Homogenous goods,Increased cost and no additional revenue,Benefits the entire industry, Perfectly elastic demand |
| Supernormal Profits | is defined as profit in excess of normal profit |
| SPECS in Longrun in Perfect Competition | SNP not earned as AR=AC, Price P2 is the selling price and Q2 is quantity produced, Equilibrium occurs at ‘E’. MC=MR[MC is rising at a faster rate than MR],Cost of producing is at point ‘E’ and normal profit is earned, Scarce resources are used efficientl |
| Short run supply curve in perfect competition | is that part of the MC curve that lies above the lowest point of the average variable cost |
| Long run supply curve in perfect competition | is that portion of its marginal cost curve that lies above the lowest point of its average cost curve |
| Short Run in perfect competition | Produces where MC=MR,Must cover AVC,SNP may be earned (AR>AC) |
| Each firm is a price taker | It accepts the price as it is set on the market/each firm supplies such a small fraction of the market it cannot influence the market price |
Created by:
deborahh
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