10 Perfect Competition vs. Monopoly Flashcards
Define Perfect Competition.
Where many firms sell homogenous products. Freedom of entry and exit and perfect information means that firms will make normal profits in the long run.
List the characteristics of perfect competition.
- Homogenous products
- All firms have access to factors of production - low B2E
- Large number of buyers and sellers
- Free entry and exit to/from the market
- Perfectly elastic demand curve - loads of competition
- Perfect knowledge/information
- Profit maximisation assumed as key objective
Rank market structures from high to low based on market power.
- Pure Monopoly
- Duopoly
- Oligopoly
- Monopolistic Competition
- Perfect Competition
Give examples of competitive markets.
- Taxi firms in London
- Foreign Exchange
- Wheat farming
Under assumptions of perfect competition the individual firm’s demand curve is…
perfectly elastic, and therefore horizontal.
Are firms price makers or price takers when there is perfect competition?
Price takers - monopolies or price makers, as they have more price setting power.
What does the Average Revenue curve equal?
The demand curve and the price
Costs curves are always the same…
shape whatever the market structure.
Which two main costs are illustrated on a perfect competition diagram?
Marginal costs and average costs.
