Ch_8 Lesson 1: Perfect Competition

Front

What are the characteristics of a perfectly competitive market?

Back

1) Many firms produce identical products. 2) Many buyers and sellers are available. 3) Sellers and buyers have all relevant information. 4) Firms can enter and leave the market freely.

Front

What two problems do firms face in a competitive market?

Back

1) Nobody has to buy their products. 2) Consumers might buy from another company.

Front

What is market structure?

Back

Market structure refers to the limiting factors that an industry works within, affecting how many companies can operate.

Front

What does it mean for a firm to be a price taker?

Back

A price taker must accept the market price for its products and cannot influence it.

Front

What happens in the short run for a perfectly competitive firm?

Back

The firm seeks to produce the quantity of output where profits are highest or losses are lowest.

Front

How do markets tend to change over time regarding competition?

Back

Markets tend to move towards perfect competition as firms notice profits and new firms enter the market.

Front

What is the equilibrium price?

Back

The price at which the quantity of goods supplied equals the quantity of goods demanded.

Front

What is the significance of price elasticity in a competitive market?

Back

If a firm raises its price, it will lose sales to competitors; if it lowers its price, it may not make a profit.

Front

What is the long run average cost curve?

Back

It represents constant returns to scale as firms adjust to market conditions over time.

Front

Can perfect competition exist in reality?

Back

No, perfect competition is a theoretical model; no market completely meets all criteria.