1. Perfect Competition Short - Term : Supernormal Normal Survival
Out of Business
Long - Term

2. Perfect Competition Assumptions : Homogenous product. Price Taker.
Perfect Knowledge.
No barriers to entry / exit.
Profit MC = MR.
Easily transportable.
Large number of buyers and sellers.

3. Supernormal Profits made under Perfect Competition (Short-Term)
THE FIRM MC
ATC
MC=MR
D/AR/MR P
AVC
ATCQ Q

4. Normal Profits made under Perfect Competition (Short-Term)
THE FIRM
ATC MC
AVC
D/AR/MR
ATCQ/P Q

5. Minimising Loss under Perfect Competition (Short-Term)
THE FIRM
ATC MC
AVC
ATCQ
D/AR/MR P Q

6. Close down Position under Perfect Competition (Short-Term)
THE FIRM
ATC MC
AVC
D/AR/MR P Q

7. Comparison of Perfect Competition and Monopoly
Perfect Competition MC
Monopoly MC
MC=MR P2 P1
D/AR MR
Q 2
Q 1

8. Advantages of Perfect Competition
Price is just sufficient to give the firm a normal profit. Customer gets product at lowest possible price, therefore is not exploited.
Each firm must produce at its most efficient output.
Public gets the greatest output from resources used to produce a good.
Firms will develop new technology to earn supernormal profits.
Advertising has no value and is stopped ; keeping down prices.
There is an automatic reaction to changes in demand. When demand changes, supply changes, due to the profit motive that causes firms to enter and exit the industry.

9. Disadvantages of Perfect Competition
There is no guarantee of equal distribution.
Wastage due to large - scale duplication of small firms.
Small firms lack funds to invest in research and development. Lack of will to invest due to rights of other firms to perfect knowledge.
Homogenous product leads to lack of variety.
Large companies achieve economies of scale and produce at lower cost than small firms. Market loses competitiveness.