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
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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
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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
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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
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5
Q

What is dynamic efficiency?

A

Firms ability to adapt and improve its productivity over time - this requires super normal profits

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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

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