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Limitations of Perfect Competition

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Limitations of Perfect Competition
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Savio Cabral
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Post Limitations of Perfect Competition - May 27th, 2009

1. Unrealistic Assumption: All the assumption on which a perfectly competitive market is based on are unrealistic ones. Even if we take a village or a local market, still many assumptions remain impractical. Therefore, perfect competition is considered as a theoretical abstraction, impossible to apply to practical situations.

2. Principles are not applicable: Perfect competition model derives many principles for the operation of a firm. For example, equilibrium production is decided at a point where MC = MR. In reality most of the business people are unaware of this rule, and if aware, they either do not or cannot apply it.

3. Time Period: A firm operates in the short –run and if it survives settle down in the long – run. Alfred Marshall, himself admitted the absence of a clear cut distinction between the two periods. At any rate they cannot be measured by calendar years. It is highly difficult for a firm to decide that its time adjustment is over and it is time for it (long run) to settle down.
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Business Education
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Re: Limitations of Perfect Competition - June 19th, 2015

Advantages of Perfect Competition

1) They allocate resources in the most efficient way

2) There is no information failure

3) Only normal profits made just cover their opportunity cost

4) Maximum consumer surplus and economic welfare
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