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In a perfectly competitive industry, what will happen in the long-run when the current price exceeds the short-run average cost? Why is this efficient?
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- Words:
- 1090
- Submitted:
- Thu Jul 11 2002
... In a perfectly competitive industry, what will happen in the long-run when the current price exceeds the short-run average cost? Why is this efficient? When we talk about perfect competition we mean a market structure that leave firms in a unique brand of competition. In fact a firm does not actually compete under perfect competition, it reacts to the market conditions, taking price and other market factors as beyond its control. A market is a perfect competition if it meets four basic criteria. The product of all sellers must be identical. All participants in the market, buyers, sellers, must be small relative to the entire market. As a result there should be many firms and buyers in the market. There are no barriers to entry or exit to the market. Firms can enter and leave as they wish. Fourthly market participants have perfect knowledge of and access to technology and prices. When
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