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Perfect Competition

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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