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Terms in this set (5)
Assumptions of perfect competition
Many buyers and sellers
No barriers to entry
Perfect knowledge of prices
The demand curve for perfect competition
A change in output by a firm will have no effect on the market price of the product. Therefore the firm faces a perfectly elastic demand curve. It has no choice about what price it receives. This is also the firm's average revenue curve
Short-run profit maximisation
The firm produces at its profit maximizing equilibrium level at the output where MC=MR. Because AR is greater than AC, the firm makes an abnormal profit.
a market structure where there are many buyers and sellers, where there is freedom of entry and exit to the market, where there is perfect knowledge and where all firms produce a homogenous product.
a firm which has no control over the market price and has to accept the market price if it wants to sell its product.
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