(a) Why would a producer (i) enter a competitive market? (ii) leave a competitive market?
(b) In what two ways do consumers benefit from perfect competition?
(c) Give the two conditions necessary for profit maximization for a perfectly competitive firm.
Explanation
(a) (i) A producer would enter a competitive market if profits are being made
(ii) A producer would leave a competitive market if losses are being incurred.
(b) Consumers benefit from perfect competition in the following ways
(i) Competition allows consumers to benefit from lower prices.
(ii) Efficient allocation of resources enables producers to produce what consumers want.
(iii) Competition promotes the production of quality products.
(c) Profit is maximized for a perfectly competitive firm when
(i) Its marginal revenue is equal to its marginal cost.
(ii) The marginal cost curve cuts the marginal revenue curve from below.