Perfect competition

• Perfect competition is a theoretical extreme and is not a realistic market structure, but it is important to assess the efficiency of real-world market structures as a benchmark.
• Perfect competition has many buyers and sellers, infinite buyers and sellers, and extreme competition.
• In a perfectly competitive market structure, each firm sells homogeneous goods and services that are identical, and firms are price takers.
• If a new firm enters the market, it has to charge the price that's being charged by all other firms in the market.
• Perfect information of market conditions means consumers know about prices and quality in the market and producers know about prices, technology, and costs.
• Firms in a perfectly competitive market structure are profit maximizers, meaning they will produce where MC is equal to MR.
• The long-run equilibrium in perfect competition is when normal profit is being made, and any profit outside of normal profit is a short-run equilibrium.
• In perfect competition, there are no barriers to exit, so firms can leave the market at any time, driving up the price and keeping it high until there is no more incentive to leave, resulting in normal profit.
• Perfectly competitive firms are allocating efficiently when the price is equal to marginal cost, as represented by price being equal to marginal cost at quantity Q 2.
• Perfectly competitive firms are productively efficient when they are operating at the lowest point on their average cost curve, as represented by a firm operating on their average cost curve.
• Perfectly competitive firms are X efficient when they are minimizing waste and cost.
• In the long run, there is no supernormal profit in perfect competition, meaning firms cannot be dynamically efficient.
• Perfectly competitive firms cannot reinvest profit back into the company, limiting innovation and progress over time.