3.8 The dynamics of competition and the competitive market process Flashcards
1
Q
In the short-run why will firms in perfectly competitive markets benefit from supernormal profits?
A
- The firm will operate where MC = MR
- At this point the AR curve might be above the AC curve
- Therefore, the firm is making supernormal profits
2
Q
In the long-run why will perfectly competitive markets benefit from efficiency?
A
- Productive efficiency occurs because the firm operates on the lowest point of its LRAC curve
- Allocative efficiency occurs because the firm operates where P = MC, at this point the price that consumers pay is equal to the satisfaction that they derive from the product
- Static efficiency occurs because all resources are being used efficiently at a point in time
3
Q
What benefits do the consumers gain from competition?
A
Improved products
Reduced costs
Improved quality of service provided
