Th3.4: Efficiency Flashcards
Perfect competition is…
productively efficient, since they produce where MC = AC
also allocative efficient since they produce where P = MC
thus they are static efficient
What is perfect competition not?
not dynamic efficient - no single firm will have enough for research and development and small firms struggle to receive finance
What does the existence of perfect information also mean?
one firms’ intervention will be adopted by another firm and so the investment will give the firm no competitive benefit
Who tends to have to do all the research?
the government
What should competition do?
keep costs, and therefore prices, low
However, firms will be unable to benefit from…
economies of scale and this may means costs are higher than they otherwise could be
