3.4.2 Perfect Competiton Flashcards
1
Q
What are the characteristics of perfect competition?
A
- homogenous products
- large number of sellers
- free barrier to entry and exit
- price takers
- equal access to FOP
2
Q
Profit maximising equilibrium in the short run
A
- MC > P = increase output = more rev than costs
- MC < P = decrease output = more costs than rev
- MC = P = firms maximise its output at the current output level
3
Q
Profit maximising equilibrium in the long run
A
- firms making economic profits in the short run = increase supply - decrease in price = decrease in profits
- firms making economic losses in the short run = decrease supply - increase in price = potentially cover costs
4
Q
What is the shut down point?
A
- businesses need to at least make normal profits to justify to remain in the industry
- SR = firms will produce = ( AR = AVC ) has to be equal
5
Q
What is dynamic efficiency?
A
Firms ability to adapt and improve its productivity over time - this requires super normal profits
6
Q
What is allocative efficiency?
A
Market prices = MC of production - meaning that consumers exactly what it costs to produce the last unit = true social value