perfect competiton

Question 1

what is perfect competition

Answer 1

Perfect competition is a market structure where many firms offer a homogeneous product. Because there is freedom of entry and exit and perfect information, firms will make normal profits and prices will be kept low by competitive pressures.

Question 2

what are the 7 features of perfect competition

Answer 2

homogenous products (all the same)
All firms have access to factors of production
large number of buyers and sellers
free entry and exit to/from the market
perfect knowledge/information
profit maximisation is assumed as the main motive

Question 3

in the long run how do firms in a competitive market act

Answer 3

if most firms are making abnormal prfit in the teh short run, this supernormal profit encourages the entry of new firms into the industry driven into the market