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 ▸If John’s elasticity of demand for burgers is constantly 0.9, and he buys 4 burgers when the price is £1.50 per burger, how many will he buy when the price is £1.00 per burger
What is producer surplus and when might it change?
Discuss the effect of a carbon tax on the level of carbon emissions
What characteristics might a perfectly competitive market have? Choose 3 (6 marks)