perfect competition

Question 1

what are the characteristics of perfect competition :

Answer 1

1)many buyers and sellers (sellers are price takers due to the number of market participants )
2)There are no barriers to entry and exit
3)Buyers and sellers posses perfect knowledge of prices
4)The products are homogenous - meaning firms are invade to build brand loyalty as perfect substitutes exist and any price changes will result in losing customers

Question 2

draw a perfect competition in the short run diagram

Question 3

why do governments try to encourage more competition in every sector in their industry?

Answer 3

firms in perfect competition have low market power , low market share and low industry concentration ratio
there is little market failure in perfectly competitive industries

Question 4

perfect competition in the short run

Answer 4

firms in perfect competition are able to make abnormal profits in the short run
a seller may gain a competitive advantage for a short period of time , which allows them to make abnormal profit