Nature and conditions of a perfectly competitive market #2

Question 1

What are the conditions of a perfectly competitive market?

Answer 1

Homogenous products, no barriers of entry, perfect information, short run, normal profit, many buyers and sellers

Question 2

How does assessing the level of competition within a market help?

Answer 2

Important for determining allocative efficiency of resource allocation

Question 3

Homogenous products

Answer 3

Indifferent or identical products

Question 4

Barriers of entry

Answer 4

Market conditions which make it difficult to enter and compete in existing markets

Question 5

Normal profit (include equation)

Answer 5

Business revenue - explicit and implicit costs. Normal profit means there is no supernormal profit in the long run

Question 6

Perfect information

Answer 6

When all buyers are fully informed on product prices, budget constraints and can order choices according to expected net benefit

Question 7

What are implicit and explicit costs?

Answer 7

Explicit costs require a transfer of money e.g. wages

Implicit costs is the opportunity cost, not involving money