Perfect competition

• Perfect competition is based on the following assumptions:

  1. there are a large number of buyers and sellers
  2. the products are homogenous
  3. there is perfect information
  4. no barriers to entry or exit
  5. all firms have access to technological improvements
  6. no one firm is large enough to affect the market price
• the area that represents the total revenue for the firm is price X quantity
• The area that represents total costs for the firm is revenue minus variable costs.
• Firms under perfect competition are capable of making supernormal profits in the Short-Run
• As new firms enter the industry, market supply will increase, causing market price to fall