Perfect Competition Perfect Competition Monopoly Market Structures Imperfect

Perfect Competition

Perfect Competition Monopoly Market Structures Imperfect Competition Oligopoly Price Discrimination

Objective of firms ? ? a) Maximise Profits b) Minimise Profits c) Maximise Losses

Firms maximise profits when ? ? a) MC > MR b) MC < MR c) MC = MR provide MC > MR at all quantities after that

Firms in Perfect Competition are? ? a) “Price givers” b) “Price takers”

Price taker means ? ? a) The firm sets the price b) The industry sets the price

Industry S Price P 1 Firm AR Q Q 1 Quantity

Eg. of Perfect Competition

Assumptions for Perfect Competition (P 95/96) 1) Many small firms in the industry: 2) Many buyers in the industry: 3) Firms aim to maximise profits:

4) Freedom of entry into & exit from the industry: 5) Widespread knowledge of profit earned: 6) Products are homogeneous:

7) Perfect elasticity of the factors of production: 8) Firms produce on the lowest point on the Average Cost Curve.

Advantages of Perfect Competition • Low prices: • No waste/efficiency: • Guaranteed same quality from all suppliers @ the same price:

Disadvantages • No Choice: • No economies of scale • Do not benefit form lower unit costs as production increases.

Explanation • In the short run firms in perfect competition earn super normal profits as AR > AC. • Because there is full knowledge of profits other firms will enter the market. • This causes the supply curve to shift to the right. • This causes the price to fall. • This will cause the demand/AR to move down.

Continued…… • This eliminates (gets rid of) SNP in the long run. • Perfect competition is as very efficient because; • Firm produce at the lowest point of average cost curve– point A. • Therefore firm do not waste any scarce resources.