Perfect competition Flashcards
What are the two rules for profit maximisation?
- Marginal output rule
- shutdown rule
What is the marginal output rule?
-If the firm doesnt shut down, it should produce where MC = MR
What is the shutdown rule?
The firm should shut down if P is less than AVC
What are assumptions of perfect competition?
- Buyers are price takers
- Sellers and buyers have complete information
- Sellers are price takers
- Entry is free
What is the market structure of perfect competition?
- Many, small sellers
- Low barriers to entry
- Undifferentiated products
What is an equilibrium in economic models?
Economic agents will not change their behaviour from the equilibrium
in perfect comp, what is the market price determined by?
Market supply and demand
In perfect comp, what is a seller’s output determined by?
Seller specific supply and demand
What does the shutdown rule require?
That p ≥ AVC
In perfect comp, why does the long run equilibrium change?
- All factors are variable
- Other sellers can freely enter the market
In perfect comp, in the short run:
P = AR = MR = MC
In perfect comp, in the long run:
P = AR = MR = MC = AC
