8- Perfect Competition Flashcards
Perfect competition market
Extreme form of competition
Buyers and sellers?
Lots of buyers and sellers
Price setting power?
Price takers- no price setting power
Horizontal demand curve AR=MR
Barriers to entry/exit?
No barriers to entry/exit
Knowledge/ information?
Perfect knowledge and information
Aims of firms?
Profit maximisation
AR=MR
Short run shutdown point?
AVC> AR
Long run shutdown point?
AC>AR
Why do firms carry on producing even if they are making a loss?
Because they are covering AVC and making a contribution to fixed costs. If all costs are variable firm will leave the market, which is what happens in the long run as there are no fixed costs in the long run.
Long term profits?
Normal profits
Product homogeneity
All products are homogenous.
Scope for economies of scale?
No scope for economies of scale
Allocative efficiency?
Yes- P=MC in both short run and long run
X efficient?
Yes- on AC curve in both short and long run.
Productive efficiency?
Short run- no, MC not = AC
Long run- yes, MC=AC