Explain the assumptions behind perfect competition and how firms behave under this market structure.
Perfect competition assumes that everyone has perfect information (no asymmetries). In addition, under perfect competition, there are many firms selling a homogeneous product. No one firm can have an effect on price, thereby implying that each supplier is a price taker (rather than a price setter). Price is set at marginal cost.
TR
Related Economics A Level answers
All answers ▸Explain how price and output are determined in both the short run and long run in a monopolistically competitive market (15 marks)
Assess macroeconomic policies which might be used to respond to rising commodity prices during a period of slow economic growth
Can firms in a perfectly competitive market make supernormal profits?
Explain why and when government spending leads to inflation