1. Perfect Competition:
The Most Efficient Market
Dominic, Andrew, Connie, and Jessie

2. What Is Perfect Competition?
All firms...
• Sell an identical product
• Are price takers
• Have relatively small market share
• Let their buyers know everything about a
product/service
• Have the leisure of entering or exiting the
industry

3. What Is Our Business?
• On campus “lounge area”
• We keep down our costs
• Perfect competition pushes us to provide the best
possible service
• We compete against Cezar’s Kitchen
• We want to take a chunk of their market share

4. Perfect Competition:
Firm and Industry
• Movement of firm reflects movement of industry and vice versa
• The AR curve = MR curve
• Firms are price takers therefore, if one firm raises the price, consumers will
move to other firms
• Creates a horizontal constant curve and no marginal revenue
• AR = MR = Demand
• Demand shows how many consumers buy at varying prices, a mirror of
what AR shows

6. Supernormal (Abnormal) Profits
• Any profit above normal profit
• Short run
• Because “perfect”, other firms will be
able to sell for the same amount so
they would soon be able to sell at the
same price
• Long Run
• Normal profit
• Bring average cost curve back to
demand curve at normal profit
• This “perfect” nature creates efficiency

9. Loss in Perfect Competition
• Demand fall results in price fall
• Experiencing loss since AR < AC
• Reflects entire market
• As firms lose money, some firms leave the market
• Results in shift in supply curve

12. Downsides of Perfect
Competition
• Low profits for investment
• Not much product variety
• Externalities may cause problems
• Possible unequal distribution of goods &
income

13. Upsides of Perfect
Competition
• Optimal allocation of resources
• Competition gives incentive to work
harder
• Consumers have influence over prices
• Business responds to consumer wishes

14. “Our Success With Perfect Competition Will Help Us Succeed
In An Oligopolistic Market Structure”
What We Have Learned That Will Bring Us Success
• Competitive Pricing
• Lowest prices possible
• We compete
• Very fit, short term gain
• Abnormal profit gives incentive to
innovate

15. To Sum Things Up...
• “Perfect Competition”
• We are creating an on campus “lounging area”
• Movement of a firm reflects the movement of
the industry and vice versa
• Abnormal profits in the short run, normal
profits in the long run