perfect competition

define perfect competition

a market which has no barriars to enter and exit

what are 6 assumptions of perfect competition

1. perfect information

2. no price-setting power

3. homogenous products

4. no eco’s of scale

5. many small firms

6. no barriers to entry

7. firms are profit maximisers

why wont firms inc price

because goods are identical to each other

what is the diagram for this structure?

two graphs, one market one of firms

what are the efficiencies like in this structure

short run: allocative and productively efficient

long run: productively efficient

why are supernormal profits only in short run

1. it attracts new firms into the market, they can enter because of perfect information and no barriers

2. supply shifts to the right and price will keep falling untill no more incentive.