perfect competition cheat sheet
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large numbers of buyers and sellers
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homogenous product (all perfect substitutes)
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no barriers to entry or exit from this market
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perfect knowledge/information between buyers and sellers
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firms are profit maximisers (MC=MR)
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firms are price takers
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all firms are small
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allocative efficiency
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in both the short and long run, P=MC and thus allocative efficiency is achieved.
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productive efficiency
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ensuring the costs of production are as low as they can be
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dynamic efficiency
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in perfect competition this will not be achieved.
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homogenous products
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perfect resource mobility
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free entry to entry and exit
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perfect / complete information
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large number of firms
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unrealistic assumptions
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limited possibilities to take advantage of economies of scale
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firms cannot expand that much
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lack of product variety
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consumers do not have variety
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waste of resources in the process of long-run adjustment
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does not make enough money to invest in R & D
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ignores market failures
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Cheatography n. The art of mapping complex subjects into clear, instantly navigable reference guides.
