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Discuss conditions are necessary for perfect competition

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Assignment:

Discuss how (why) the conditions that are necessary for perfect competition lead to outcomes that are ideal for a society.

Topic : Perfect competition

Firms maximize economic profits- different than accounting profits because economic profits include both explicit and implicit (or opportunity costs) including the opportunity costs of capital- a normal rate of profit.

Conditions for perfect competition:

1. Homogeneous or standardized product

2. Firms are price takers

3. Free ( no cost) entry and exit for firms

4. Perfect Information- firms and consumers have all the information they need

Profit maximizing firms produce where marginal cost equals marginal revenue

For you mathaletes , first order conditions MC=MR

The appeal of perfect competition is that firms are forced to be efficient and there are no excess profits in the long run.

Reference no: EM133201067

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