5.3 Perfect Competition
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4 Terms
What are the characteristics of a perfectly competitive market?
Many buyers and sellers, no barriers to entry, homogenous goods, price takers, perfect information
What efficiencies does perfect competition have and why
Allocative efficiency: firms produce where price equals marginal cost (P = MC)
Productive efficiency: means goods are made using the fewest resources possible, and perfect competition ensures this happens in the long run.
X-efficiency: firms can't afford to waste any goods or services, and perfect competition forces them not to waste anythingAre firms in perfect competition price makers or price takers?
Are firms in perfect competition price makers or price takers?
Price takers
Why are firms not dynamic efficient in perfect competition
Firms do not make super-normal profits in the long run, therefore are unable to reinvest into R&D and innovate, leading to a lack of dynamic efficiency.