Title: Perfect Competition | Intelligent Economist
Headings: Perfect Competition
Perfect Competition
Perfect Competition Definition
Perfect vs. Imperfect Competition
Characteristics of Perfect Competition
1. Number of Firms
2. Homogeneous
3. Barriers to Entry
4. Perfect Information
5. Price Takers
6. Affordable, Streamlined Transportation Options
7. No Controls
Perfect Competition Total Revenue Curve
Perfect Competition Examples
1. Internet Sellers
2. Foreign Exchange Markets
3. Agricultural Markets
Marginal & Average Revenue Curve
A. Marginal Revenue
B. Average Revenue
Price (P) = AR = MR (in Perfect Competition)
Perfect Competition Short Run
Perfect Competition Short Run Industrial Equilibrium
Firm as a Price Taker
Perfect Competition Short-Run Equilibrium: Supernormal Profits
Perfect Competition Short Run Losses
Perfect Competition Short Run Equilibrium Loss Making
Normal Profit/Break-even
Perfect Competition Short Run Zero Economic Profits
Leaving the Industry
Perfect Competition in the Long Run
Perfect Competition Long Run Factor Mobility
Perfect Competition Long Run Equilibrium
Perfect Competition Long-Run Profit Maximization Formula
1. Productive Efficiency
2. Technical Efficiency
3. Allocative Efficiency
Disadvantages of Perfect Competition
1. Lack of Innovation
2. Less Variety of Products
3. Fixed Profit Margins
4. No Economies of Scale
Perfect Competition Rise in Demand
Perfect Competition Rise in Industry Demand
Perfect Competition Rise in Demand Individual Firm
Perfect Competition Industry (Leads To Rise in Supply)
Perfect Competition Individual Firm (Leads To Rise in Supply)
Prateek Agarwal
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Content: Perfect Competition | Intelligent Economist
Cost Theory
Perfect Competition
Prateek Agarwal
March 31, 2020
Perfect Competition Definition
Perfect competition or pure competition (sometimes abbreviated to PC) is a type of market structure. It is important to note that this form of market structure does not actually exist in the real world and is thus considered to be theoretical. As an economic theory, then, it does not seek to literally describe reality but to stand as an “ideal type” against which markets in the real world can be compared and contrasted. In a perfectly competitive market: There are very many small firms
All of these firms sell the same homogeneous product, often classified as a commodity
There are no barriers to entering or exiting the market
Both producers and consumers have perfect knowledge (for the present, as well as the past and future) regarding the nature and price of the product for sale from each firm
All firms in the market are price takers, meaning they do not have the power to affect the price of the goods they sell
Transportation for goods is affordable and efficient
There are no government controls on the market
Where there is perfect competition, prices are a direct representation of the forces of supply and demand. Profits are limited for firms—they are only able to make enough to keep their business going, rather than any additional profits. This is because profits at any level higher than that would draw new firms into the market and automatically bring profits back down to a normal level. Perfect vs. Imperfect Competition
Compare perfect competition with imperfect competition, which is a market (real or hypothetical) that does not show all of the features of perfect competition as described in the next section. Theories surrounding comparison of perfect and imperfect competition come out of post-classical economic thought in the well-known, influential Cambridge tradition. Characteristics of Perfect Competition
1.