(a) What is perfect competition?
(b) With the aid of diagrams, compare the short run equilibrium positions of a perfect competitor and an imperfect competitor.
(c) State any two features of an imperfect market.
Explanation
(a) Perfect competition is a market structure in which there are many buyers and sellers such that buyers or sellers cannot influence the price i.e. buyers or sellers are price takers
(b) Short-run equilibrium of a perfect competitor and an imperfect competitor.
The similarities and differences in equilibrium are as follows:
(i) Both the perfect competitor and the imperfect competitor are in equilibrium when MC = MR.
(ii) In each case, the market is in equilibrium when MC curve cuts the MR curve from below.
(iii) In the short-run, both the perfect competitor and the imperfect competitor can make abnormal profits.
(iv) The firm in a perfect competition is in short run equilibrium when MC = AR = P > AC while a firm under imperfect competition is in short run equilibrium when MC = MR < AR.
(c)(i) only one or few buyer(s) and seller(s)
(ii) There is preferential treatment
(iii) There is transport cost
(iv) Goods sold are heterogeneous (not homogeneous).