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Harry Bindloss

Perfect competition: Perfect competition is a theoretical market structure. It is primarily
used as a benchmark against which other market structures are compared. The industry that
best reflects perfect competition in real life is the agricultural industry.


Homogenous products - different producers products are identical…

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Harry Bindloss

Price is falling as other firms are seeing there is profit to be had. Price falls and as AR is
below AC now there is a loss.

When market changes occur (Long Run):

Point of Rest as this is the long term
This is where there is normal…

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Harry Bindloss

In the short run conditions of perfect competition a firm produces at the profit maximising
output i.e. MR=MC (where MC is rising). In this way the firm is making supernormal profit
because AR > AC. This supernormal profit sends a signal to other potential firms to enter the…

Page 4

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Harry Bindloss

In the long run a minimum of normal profit is needed to remain in a market for a particular
product. Normal profit occurs when AR = AC. The selling price P2 illustrates this position.


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