Characteristics of perfect competition market, Managerial Economics

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Q. Characteristics of perfect competition market?

Following are the characteristics of perfect competition market: 

• Large Number of Sellers andBuyers: As there are a large number of sellers andbuyers, no individual seller or buyer can influence the price of product that is determined by collective effect of all the sellers andbuyers.

• Homogenous Product: As the product of all the firms is identical or homogenous, all the firms sell their product at the market price. No firm can charge any price more than price prevailing in the market.

• Free Entry and Exit of Firms: All the firms are free to leave or join industry. There is no restriction on their entry and exit. Therefore if the industry is accruing profits, new firms will enter into the market. Contrarily, if the industry is suffering loss, many firms would leave the market.

• Perfect Knowledge of Market Conditions:Because all the sellers and buyers hold perfect knowledge of all the market conditions, there is free movement of sellers andbuyers. Advertisement and selling methods don't have an effect on consumer behaviour.

• Perfect Mobility of the Factors of Production: As all the factors of production are perfectly mobile, factors of production are free to shift to any organisation where they are not being paid a fair price.

• Independence of Decision Making: All buyers and sellers are fully independent. None of them is committed to anyone. Hence, the buyers are free to purchase the required commodity from any seller and sellers are free to sell their commodity to any buyer or buyers. The price of a commodity at a particular time tends to be equal all over the market which all the firms have to follow.

• Absence of Selling and Transportation Costs.  It is presumed that selling and transportation costs haven't any role to play in the determination of price.


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