Perfect Competition

Perfect Competition

1. ASSUMPTIONS

   • LARGE NUMBER OF BUYERS+SELLERS - NO INDIVIDUAL CAN ALTER THE MARKET PRICE
   • PERFECT INFORMATION OF ALL PRODUCTS
   • EQUAL ACCESS TO TECHNOLOGY
   • HOMOGENEOUS PRODUCTS
   • NO BARRIERS TO ENTRY OR EXIT
   • PERFECTLY MOBILE FACTORS OF PRODUCTION

2. LONG RUN = profits cannot be made

   • firm would be competed away
     • produce at market clearing price
       • ATC=MC

3. SHORT RUN = If ATC is below market clearing price

   • Abnormal profits made
     • signals to other firms to enter market
       • supply increase = price set below market clearing = ATC=MC

4. LONG RUN = firms statically efficient

   • both productively + allocatively efficient at the same time
     • Firms being making losses
       • supply reduces
         • price increases