4.1 Perfect Competition

Question 1

Explain the Characteristics of Perfect Competition.

Answer 1

• Low barriers to entry & exit
• Identical Products
• Price Takers
• Perfect Information for consumers
• Small market share
• Lots of firms
• Profit maximisation

Question 2

Explain and draw a diagram for PC Short Run profits.

Answer 2

In the short run, firms in perfect competition may experience supernormal profits, since there will be less firms competing over price.