Explanation

A. - There is free entry and exit
- The product are homogeneous
- There is perfect knowledge about the product
- There are large numbers of buyers and sellers
- The aim is to make profit

Bi.  The short run is a period of time in which some factors are fixed and some are variable. In the short run, a perfect market enjoys
increasing returns to scale.  
From the diagram above, he is faced with average revenue horizontal demand curve or price line. Since the MR and AR are equal
and there is no selling cost.
He sells at equilibrium price OP and equilibrium quantity OQ. His total revenue is OPMQ while total cost is OTSQ and earns
abnormal profit represented by PMST as shaded in the diagram above.
However, the equilibrium position of the firm is at "e" where SMC cuts the MR from below.

Bii.The long run is a preriod of time in which all factors are completely variable. In the long run, the firm will be making only
normal profit. Abnornal profit will be completely wipped off since new firms will enter the industry.
The firm will be in long run equilibrium when:
- when LMC =LMR=LAC=LAR=P=D
- when LMC cuts LMR from below
From the diagram above, the firm is at equilibrium at point "e" where the LRMC cuts the LRMR from below.
 

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