Perfect Competition 3.4.2

Question 1

What are the key features of Perfect Competition

Answer 1

No barriers to entry/exit
Many buyers and sellers
Homogeneous goods
Perfect Information

Question 2

Advantages of perfect competition for consumers

Answer 2

Firms produce at allocative efficiency leading to a maximisation of consumer surplus

Question 3

Disadvantages of perfect competition for consumers

Answer 3

Cant reinvest due to normal profits and are too small to access economies of scale, leading to more expensive and less quality goods

Question 4

In the short run firms in perfect competition make

Answer 4

Supernormal Profit

Question 5

In the long run in perfect competition firms make

Answer 5

Normal Profit

Question 6

Disadvantages of a perfectly competitive market

Answer 6

Prices may increase
No economies of scale
No dynamic efficiency
Cost Cutting in undesirable areas

Question 7

In the long run firms in perfect competition are

Answer 7

Allocatively efficient AC = AR
Productively efficient Min AC
X efficient if prod eff
Dynamically inefficient - NO SNP