T5 - Perfect comp Flashcards
Is perfect comp realistic
No
What do firms not compete on in perfect comp
Marketing
Differentiation
Brand image
R and D
Features of perfect comp
Many sellers
Price takers
Indiviual buyers
No barriers to entry or exist
No sunk cost
Homogeneous products
Perfect info
Perfectly movile factors
No externalities
Which firm can affect market price in a perfect comp market
Noen
What type of demand curve is there for perfect comp
Perfectly elastic
When should firms produce
AT MC = MR
What is the market response to changes in prices
Firms will enter or leave markets, same with consumers
Firms responses to changes in price
They will have to change output, so they operate at MC = MR
What is the long run equalibrium position for a firm in perfect comp
ATC = AR
When is there normal profit
ATC = AR
When firms are making a loss at a given output what happens to the market
Supply shifts to the left
What are the efficencies of perfect comp
Allocative efficency at P = MC
Productiev efficecy - Lowest point on AC
FIrms are unlikely to be dynamically efficeny
What is allocative efficiency
Occurs when it is possible to improve eco welfare by reallctiong resource between markets
What has to equal what to indicate resources being allocated accordingly
MC = P
When is there allocative inefficency
P > MC
P < MC
What are the inefficiencies of perfect comp
No scope for EoS
Lack of supernormal profits dissallowing dynamic effieciencu
Why are perfect comp markets not realistic
Suppliers can control supply
Consumers may have monopsony piwer
Always is barriers to entry
There always is product diff
Cosumers dont have perfect info
Firms dont have perfect info
Always will be externaltiies
what are perfect markets of any sort charactersied by
unlimited buyers and sellers
no bte or exit
perfect info
price takers, wage takers
identifial or perfetc substirues
no price cotnrol
no externalitites, allocatiev efficiency
in perfect markets what doprice/wage adn quantity redlect
supply and demand
why in eprfect markets and shit will there be social optimum elevl of output a
as consuemrs have all information can make rationl descion, leadign to no
PIMMFACED
esespcailly no info failirue, oc of demrrit goods, no uc of merit goods
factor immobility etc etc
talk through perfect comp short and long run
in short run firms make supernormal profits, limited supply in market
new firms attracted to profit levels
enter with ease
will eneter up until firms can operate at lowest possible costs and they cannot be mroe prodcutively efficnet
logn run equilbirum will lead to producitve, allocateive effficny
normal profits
why is the ar/mr line horiziotnal
demand is perfectly elastic
if price changed, consumers go elswhere
mr is horzitnoal as regarldess of qty price stays same
