Question

2. (a) Identify the assumptions associated with a firm operating under perfect competition and what the...

2. (a) Identify the assumptions associated with a firm operating under perfect competition and what the implications of those assumptions mean for its short run and long run decisions?

(b) Explain why market power leads to market failure and how this can be corrected. (2 points)

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Answer #1

The perfect competation market is the ideal market the following the theories of the perfect competation market.

  1. Large numbers of the buyers and sellers
  2. Homogeneous product close substitution
  3. The firm is th price taker can not influence the market price
  4. Freedom of entry and exists
  5. perfect knowledge of the product customers and firms

The perfect competition is the ideal market because consumer pay the price goods equal to marginal cost and output level is equals the optimum size

Incomplete information, the Higher price greater than MC, not the optimal level of the production are the major reasons for market power.

Market information, government regulation is the major solution for the market failure correction.

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