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Explain why perfect competition is generally regarded as economically efficient
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Explain why perfect competition is generally regarded as economically efficient Perfect competition is a market structure at one end of the spectrum. The model of perfect competition concludes that profits are maximised when price equals marginal cost. This theory is dependant upon four main assumptions. The first assumption is that firms are price takers. This is because each firm is so small relative to the whole industry that it has no power to influence price. The firm faces a horizontal demand curve at the market price. A second assumption is that there is freedom of entry into the market. This means that there are no barriers to entry, so that an existing firm is unable to stop a new firm setting up. An extension of this is that there is complete factor mobility in the long run. It is also assumed that products are identical (homogeneous), so that there is no...
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