What are the advantages and the disadvantages of being over-competitive to individuals and society?
Answers
Answer:
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Answer:
This is the market which has many small firms and they themselves don’t have enough market power to affect the price
Homogeneous products
Perfect Knowledge/Information
No barriers to entry and exit
Factor of production perfectly mobile
Advantages of Perfect Competition
They allocate resources in the most efficient way- both productively (P=MC) and allocatively efficient (P> MC) in the long run.
There is no information failure as all knowledge is spread out evenly
Only normal profits made just cover their opportunity cost
Maximum consumer surplus and economic welfare
The disadvantages:
No Scope for economies of scale because of the high number of firms in there
Undifferentiated products- all homogeneous. Important in industries like clothes and cars
Lack of supernormal profits may mean the investment of Research and Development(R&D) is unlikely. Important for industries like pharmaceuticals.
With perfect knowledge there is no incentive to develop new technology because of the ability to share information.- FREE RIDERS of info