Perfect Competition

Question 1

Advantages

Answer 1

• PC=MC, production at AC
• only normal profits made in LR
• Consumer sovereignty
• Competition efficacy

Question 2

Disadvantages

Answer 2

• insufficient profits for investment
• scariness of product diversity
• absence of comp over product design and specification.

Question 3

What do Neo-economists argue

Answer 3

• PC would produce best possible outcome for consumers and society.
• no need for gov ref expect to make markets more competivte
• no externalities / no external cost / benefits to third parties not involved in transaction

Question 4

Example of market

Answer 4

• firms within PC - can sell as much as they like at any given price meaning P = MR = MC
• example is carrot and cabbage

Question 5

TR=TC

Answer 5

Total cost include = rent, wages, interest and normal profit means enterpenour cover opportunity cost.

Question 6

What happens in SR and LR in PC

Answer 6

• SR- abnormal profits / loses be made
• LR- normal profits be made due to exit /entry of diff firms
• LR- firms are alloctively and productively efficient.
• equation P=MR=MC=AC represents that curve is in fact supply curve.

Question 7

What’s the enter and exit of firms more likely happen

Answer 7

• increase of firms into industry in SR unlikely - little time to enter.
• LR- field will enter industry
• existing companies gain supernormal profits

Question 8

What is the quaintly of buyers and sellers

Answer 8

• large quaintly of buyers and sellers
• freedom of entry and exit ( means depart and exit easy )
• single firms won’t increase price
• same goes for lowering price as goods will still sell at market price
• example - peas - no point selling peas higher price as wont sell any.

Question 9

Is PC a price taker

Answer 9

• Price taker as horizontal de and curve at market price
• perfect knowledge of market at both consumers and producers know prices whereas producers will know costs as well as market opportunities available.
• despite conditions firms probs not meet.

Question 10

Finically industry ; example of PC

Answer 10

• foreign exchange side of things.
• currency is homogeneous- goods traded within market remain same no matter what
• people have access to traders to be realisable info
• brexit £ dropped against €
• day of brexit £1 = 1.2900 now around £1 = 1.09 roughly 15% decrease
• companies introduce cash passport /travel money cards to ensure the return of company return.