Perfect Competition

Market Structure: Perfect Competition;

THE FOLLOWING NOTES ARE THE BASIC CONCEPTS IN THE MAINSTREAM (CAPITALISTIC, NEO-CLASSICAL) ECONOMICS.

Conditions

  • Large number of sellers and buyers
  • Homogeneous products
  • Freedom of entry into exit from the market

Features

  • Suppliers are price takers
  • Price (P) = Marginal Revenue (MR)
    • Extra revenue of an additional unit is the same as the current price
  • Long-run Equilibrium
    • Companies earn normal profits
    • P = MR = MC = AC
  • The perfectly competitive market will be allocatively / productively efficient.
    • Companies produce products at the minimum of Average Costs (AC) curve – lowest unit cost possible – and there is no waste of resources.

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