18 Perfect competition Flashcards
1
Q
perfect competition
A
market structure with many buyers and sellers that can achieve allocative and productive efficiency in the long run
2
Q
conditions for perfect competition
A
- many sellers/buyers - no dominance or control
- no barriers to entry - can enter easily and compete
- no barriers to exit - exit when it becomes unprofitable
- price takers - must take market price because firms cant affect the market price
- homogeneous products - no actual or perceived difference between different products on the market
- perfect knowledge - all firms have all information of the actions and prices of the other firms in the market
3
Q
short run perfect competition
A
market structure that has allocative efficiency but not productive efficiency
4
Q
long run
A
market structure that has allocative efficiency and productive efficiency
5
Q
Allocative efficiency
A
the optimal distribution of products
- price = marginal cost
6
Q
productive efficiency
A
operating at lowest average cost
- marginal cost = bottom average cost