Perfect Competition
market structure where
a
many firms offer a homogeneous product
·
Characteristics perfect knowledge/information
no
transport costs
·
large number of producers + consumers
·
takers
price
·
↳
firms are too small to influence the
price
Firm
Industry
w
Cost/
L
Price
-
AR RR D
=
O
= -----------------------------
-
- D
O
perfectly elastic
&X
price reduction is needed to sell
the extra unit
too small that X affect
·
· in
output
market
supply
Short Run Profits
-
Et abnormal
profit
maximising profit at MC MR
=
attract new entrants
In the Run Firm
Long
Ki - #
>
-
Pi
----
----------- R >
-
Q2
D
firms attracted firm DVQXP
new
industry S↑Q↑ PL
>
- >
-
(due to more
competitive
normal
profits at AC AR
=
no
tendency for firms to leave/enter the industry
market structure where
a
many firms offer a homogeneous product
·
Characteristics perfect knowledge/information
no
transport costs
·
large number of producers + consumers
·
takers
price
·
↳
firms are too small to influence the
price
Firm
Industry
w
Cost/
L
Price
-
AR RR D
=
O
= -----------------------------
-
- D
O
perfectly elastic
&X
price reduction is needed to sell
the extra unit
too small that X affect
·
· in
output
market
supply
Short Run Profits
-
Et abnormal
profit
maximising profit at MC MR
=
attract new entrants
In the Run Firm
Long
Ki - #
>
-
Pi
----
----------- R >
-
Q2
D
firms attracted firm DVQXP
new
industry S↑Q↑ PL
>
- >
-
(due to more
competitive
normal
profits at AC AR
=
no
tendency for firms to leave/enter the industry
