Perfect Competition

Question 1

Spec Poinst

Answer 1

a) Characteristics of perfect competition
b) Profit maximising equilibrium in the short run and long
run
c) Diagrammatic analysis

Question 2

What are the characteristics of PC

Answer 2

• Many buyers and sellers
• Homogenous goods
• No barriers to entry/exit
• Perfect information
• Profit max

Question 3

What kind of profit is made in the long run for PC?

Answer 3

Normal profit

Question 4

Why is normal profit made in the long run ?

Answer 4

1 - Firms are attracted to SNP being made in the SR, therefore new firms will join the market. This will lead to an increase in supply and a lower price level. This means firms eventually will not be able to set price above AC to make SNP anymore