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Theme 3
Market Structures
3.4.2 - Perfect Competition
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Created by
Saberie Mohammad
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Cards (12)
What is the definition of perfect competition?
A
market structure
with many firms,
homogeneous products
, and
free market entry
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What are the key characteristics of perfect competition?
Many small firms,
homogeneous products
,
perfect information
, and
easy entry
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What does it mean for firms to be price takers in perfect competition?
Firms have no control over price and accept the
prevailing market price
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How does the demand curve behave for firms in perfect competition?
The demand curve is
perfectly elastic
for firms
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What is the relationship between profit maximization and marginal cost (MC) and marginal revenue (MR) in perfect competition?
Profit maximization occurs where MC
equals
MR
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What happens to short-run profits in perfect competition?
Short-run profits vary, while
long-run
leads to
normal profits
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What is achieved in long-run equilibrium in perfect competition?
Firms achieve
productive efficiency
and allocate
resources
efficiently
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What is allocative efficiency in the context of perfect competition?
It aligns prices with
consumer preferences
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What does dynamic efficiency refer to in perfect competition?
It lacks
supernormal profits
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What are the main features of perfect competition?
Many small firms
Homogeneous products
Perfect information
Easy
entry and exit
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What are the implications of perfect competition on innovation?
Lack of long-term
supernormal profits
Limited
incentives
for innovation
High
efficiency
in resource allocation
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What is the summary of perfect competition?
It is a
market structure
with many firms,
homogeneous products
, and
free market entry
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