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Economics ­ Perfectly Competitive Markets

Firms operating under these conditions will need to:

Remain price competitive
Will strive to improve the quality of their products ­ stay ahead of competitors

Assumptions of Perfect Competition:

Many Buyers & Sellers ­ Some big, Some small ­ Ensures product is sold and that…

Page 2

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In the Long-Run:

Productively Efficient ­ Produce at the lowest point on the LRAC curve
Allocatively Efficient ­ Produce where AR=AC
Profit Maximises ­ Produce where MC=MR

If in the short-run, firms decide to make abnormal profits then new firms will enter into the
market to compete them away


Page 3

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In the short-run:

Normal Profit is already included in Costs to any
profit shown on these graphs is `abnormal profit'

When abnormal profit is being made ­ Other
firms will wish to enter the industry to maximise
the opportunity cost of using their resources

There are no barriers to entry…


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