1. Perfect Competition

2. Market Structures Perfect Competition Monopoly Imperfect Competition Oligopoly Price Discrimination

3. Objective of firms ?? a)Maximise Profits b)Minimise Profits c)Maximise Losses

4. Firms maximise profits when ?? a)MC > MR b)MC < MR c)MC = MR provide MC > MR at all quantities after that

5. Firms in Perfect Competition are?? a)“Price givers” b)“Price takers”

6. Price taker means ?? a)The firm sets the price b)The industry sets the price

7. Industry Price Quantity P1 Q1 P1AR Firm Price Quantity S Q

9. Eg. of Perfect Competition

10. Assumptions for Perfect Competition (P 95/96) 1)Many small firms in the industry: 2) Many buyers in the industry: 3) Firms aim to maximise profits:

11. 4) Freedom of entry into & exit from the industry: 5) Widespread knowledge of profit earned: 6) Products are homogeneous:

12. 7) Perfect elasticity of the factors of production: 8) Firms produce on the lowest point on the Average Cost Curve.

13. Advantages of Perfect Competition Low prices: No waste/efficiency: Guaranteed same quality from all suppliers @ the same price:

14. Disadvantages No Choice: No economies of scale Do not benefit form lower unit costs as production increases.

18. Explanation In the short run firms in perfect competition earn super normal profits as AR > AC. Because there is full knowledge of profits other firms will enter the market. This causes the supply curve to shift to the right. This causes the price to fall. This will cause the demand/AR to move down.

19. Continued…… This eliminates (gets rid of) SNP in the long run. Perfect competition is as very efficient because; Firm produce at the lowest point of average cost curve– point A. Therefore firm do not waste any scarce resources.