One of the assumptions of a firm in Perfect Competition is that there is perfect knowledge of profits and prices - Leaving Cert Economics - Question 9 - 2006
Question 9
One of the assumptions of a firm in Perfect Competition is that there is perfect knowledge of profits and prices.
State FOUR other assumptions of a firm in Perfect ... show full transcript
Worked Solution & Example Answer:One of the assumptions of a firm in Perfect Competition is that there is perfect knowledge of profits and prices - Leaving Cert Economics - Question 9 - 2006
Step 1
A large number of buyers exist.
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Answer
In a perfectly competitive market, it is assumed that there are many buyers. This ensures that no single buyer can influence the market price of the product.
Step 2
A large number of sellers exist / Firms are price takers.
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Answer
Perfect competition assumes a large number of sellers in the market. Each firm is a price taker, meaning they accept the market price as given and cannot set their own prices.
Step 3
Freedom of entry and exit exists / No barriers to entry.
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Firms can freely enter or exit the market, promoting competition and helping to ensure that profits are normalized across the industry in the long run.
Step 4
Firms produce homogeneous goods.
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Answer
All firms produce identical or homogeneous products, which means that consumers do not perceive any differences between products from different firms.
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