Chapter 3 - Competitive markets and perfect competition

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usman ahmed
Created by usman ahmed almost 6 years ago
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Chapter 3 - Competitive markets and perfect competition
1 Perfect competition assumptions
1.1 Many buyers and sellers
1.2 Firms are price takers
1.3 homogenous product
1.4 perfect knowledge of product/service
1.5 perfect mobility of factors
1.6 readily available information
1.7 No barriers to entry or exit
2 Super-normal profit in short term only
3 In long run firms are statically efficient, but not dynamically efficient
3.1 Static - Allocative(AR=MC) & Productive(MC=AC)
3.2 Dynamic - R+D that lowers the LRAC
4 Shutdown point - firm will choose to continue production or stop trading depending on which option gives a lower loss
4.1 Cannot price below AVC curve, else it shuts down immediately
5 Agriculture resembles P.C.

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