18 Perfect competition

Question 1

perfect competition

Answer 1

market structure with many buyers and sellers that can achieve allocative and productive efficiency in the long run

Question 2

conditions for perfect competition

Answer 2

• many sellers/buyers - no dominance or control
• no barriers to entry - can enter easily and compete
• no barriers to exit - exit when it becomes unprofitable
• price takers - must take market price because firms cant affect the market price
• homogeneous products - no actual or perceived difference between different products on the market
• perfect knowledge - all firms have all information of the actions and prices of the other firms in the market

Question 3

short run perfect competition

Answer 3

market structure that has allocative efficiency but not productive efficiency

Question 4

long run

Answer 4

market structure that has allocative efficiency and productive efficiency

Question 5

Allocative efficiency

Answer 5

the optimal distribution of products
- price = marginal cost

Question 6

productive efficiency

Answer 6

operating at lowest average cost
- marginal cost = bottom average cost