perfect competition

Question 1

conditions of perfect comp

Answer 1

many buyers and sellers, homogenous products, firms are price takers, no barriers to entry and exit, perfect info, firms are profit maximisers

Question 2

graph of perfect competition

Answer 2

-Long run equilbirum: normal profit
-graph on left: supply and demand curve
-graph on right: equilbirum from left is AR, MC and AC meet here, AC above

Question 3

supernormal profit to the long run perfect comp

Answer 3

-market on left, firm on right
-supernormal profit (AC>AR), produce MC=MR and then distance fro MC and AC
-profit attracts new firms into market, no barriers to entry
-supply shift right and price falls
-all supernormal profits taken away and it is

-same for subnormal profit, firms leave

Question 4

analysis of perfect comp in the long run

Answer 4

-a.e. price = mc
-productive efficiency: lowest point on AC
-x efficiency: producing on average cost
-dynamic efficiency: no investment of long run