Perfect competition (Micro) Flashcards
Cards describing conditions for perfect competition and the conditions arising as a result.
What are the necessary conditions for perfect competition?
Lots of firms
Perfect information
Homogenous products
No barriers to entry
Can firms in perfect competition make supernormal profits?
In the short run yes
Why can’t firms make SN profit in the long run?
When SN profits are made, new firms enter the market due to few barriers to entry, supply increases and thus price falls, reducing SN profit to normal of incumbent firms.
What are firms considered to be in perfect competition?
Price takers, the consumers have sovereignty.
What are the advantages of Perfect competition?
Allocative and productively efficient
Where is the productively efficient point?
Where firms produce on the lowest point on their ACT curve
Where is the allocatively efficient point?
Where P = MC
Disadvantages of perfect competition?
Low quality goods, lack of investment
