perfect competition

Question 1

characteristics of perfect competition

Answer 1

• Many buyers and sellers – infinite
• Homogenous goods – firms are price takers
• No barriers to entry/exit
• Perfect information
• Firms are profit maximisers – produce at MC= MR

Question 2

LR equilibrium

Answer 2

normal profit being made

Question 3

SNP SR equilibrium

Answer 3

• firms are price takers
• profit motive incentivises more firms to join the market.
• supply rises, assuming constant demand - market price falls
• falls until it reaches normal profit.

Question 4

SBP SR equilibrium

Answer 4

• firms will leave the market and pursue producing their opportunity cost
• supply falls = market price rises
• rises until normal profit is being made.

Question 5

AE in perfect competition

Answer 5

resources are perfectly following consumer demand, so yes

Question 6

PE in perfect competition

Answer 6

operating on the lowest cost on AC, so yes

Question 7

XE in perfect competition

Answer 7

if PE yes, then XE yes

Question 8

Static efficiency in perfect competition

Answer 8

all components are met.

Question 9

Dynamic efficiency

Answer 9

may not occur as there is no SNP to reinvest and progress

Question 10

Perfect comp in firm

Answer 10

Mr = ar = D
- snp won’t last as low info means everyone can imitate firms revolution
- sbp won’t last as no barriers to e so firms will leave