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Perfect competition and economic profits

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1. Briefly state the basic characteristics of purely competitive market (PC market).

2. Explain how each firm in PC market earns zero economic profit (normal profit) in the long run.

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Solution Summary

Solution briefly explains main characteristics of purely competitive markets and explains why firms earn zero economic profits in long run.

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Solution:

Briefly state the basic characteristics of purely competitive market (PC market).

1. There are many buyers and seller in the market.

2. The goods or services offered by the various sellers are homogeneous or largely the same i.e. consumer cannot make any difference between what one firm produces and what another firm produces. It shows that non-price competition is impossible in perfect competition.

3. Firms can easily enter and exit the market. There are no barriers to prevent ...

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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