3.4.2 - Perfect Competition

    Cards (12)

    • What is the definition of perfect competition?
      A market structure with many firms, homogeneous products, and free market entry
    • What are the key characteristics of perfect competition?
      Many small firms, homogeneous products, perfect information, and easy entry
    • 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
    • How does the demand curve behave for firms in perfect competition?
      The demand curve is perfectly elastic for firms
    • 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
    • What happens to short-run profits in perfect competition?
      Short-run profits vary, while long-run leads to normal profits
    • What is achieved in long-run equilibrium in perfect competition?
      Firms achieve productive efficiency and allocate resources efficiently
    • What is allocative efficiency in the context of perfect competition?
      It aligns prices with consumer preferences
    • What does dynamic efficiency refer to in perfect competition?
      It lacks supernormal profits
    • What are the main features of perfect competition?
      • Many small firms
      • Homogeneous products
      • Perfect information
      • Easy entry and exit
    • What are the implications of perfect competition on innovation?
      • Lack of long-term supernormal profits
      • Limited incentives for innovation
      • High efficiency in resource allocation
    • What is the summary of perfect competition?
      It is a market structure with many firms, homogeneous products, and free market entry