Perfect Competition Flashcards
What are the characteristics of perfect completions
Homogenous products
Perfect knowledge
Large number of small firms
Each firm can sell as much it wants to produce —> price takers
Freedom of market entry and exit (perfectly mobile FoP)
What is the short run situation in this type of market when the firms make profit
Demand curve shifts right
Higher market price
Make supernormal profit
What is the long run situation after the firms make profit
More firms attracted
Supply increases so market price falls
What is the short run situation when the firm makes a loss
Market entry increases supply
Lowers market price
What is the long run situation when firms make a loss
AC = AR
Firm only makes normal profit
No signal for market entry or exit
Remains at this level of output
