(a) What is perfect competition? (b) With the aid of diagrams, compare the short run...
(a) What is perfect competition?
(b) With the aid of diagrams, compare the short run equilibrium positions of a perfect competitor and an imperfect competitor.
(c) State anytwo features of an imperfect market.
Explanation
(a) Perfect competition is a market structure in which there are many buyers and sellers such that buyers or sellers cannot influence the price i.e. buyers or sellers are price takers
(b) Short-run equilibrium of a perfect competitor and an imperfect competitor.
The similarities and differences in equilibrium are as follows:
(i) Both the perfect competitor and the imperfect competitor are in equilibrium when MC = MR.
(ii) In each case, the market is in equilibrium when MC curve cuts the MR curve from below.
(iii) In the short-run, both the perfect competitor and the imperfect competitor can make abnormal profits.
(iv) The firm in a perfect competition is in short run equilibrium when MC = AR = P > AC while a firm under imperfect competition is in short run equilibrium when MC = MR < AR.
(c)(i) only one or few buyer(s) and seller(s)
(ii) There is preferential treatment
(iii) There is transport cost
(iv) Goods sold are heterogeneous (not homogeneous).