Perfect Competition

Question 1

Perfect competition is a profit maximiser when will it produce ?

Answer 1

When MR=MC which is at q1

Question 2

If perfect competition are making a loss why will they leave?

Answer 2

There aren’t any barriers to exit

Question 3

What will firms not make in the long run?

Answer 3

An economic loss

Question 4

In the long run under perfect competition what can’t firms earn?

Answer 4

Supernormal profit

Question 5

Why do firms have no ability to charge Above the price p1?

Answer 5

As there are many sellers of the product all products are the same type and customers know this

Question 6

How do we know a firm in perfect competition is productively efficient?

Answer 6

At q1 the firm is producing at the lowest point on it AC curve

Question 7

5 key characteristics of perfectly competitive markets

Answer 7

Many buyers and sellers
Goods are homogeneous
No barriers to entry or exit
Perfect knowledge exists
Firms charge same prices (price takers)

Question 8

Allocative efficiency in perfect competition

Answer 8

Price = mc

Resources are following consumer demand

Prices are low

Consumer surplus is high

Quantity and choice is high

benefiting the consumer