Perfect competition, Managerial Economics

Perfect Competition

 The model of perfect competition describes a market situation in which there are:

i.         Many buyers and sellers to the extent that the supply of one firm makes a very insignificant contribution on the total supply.  Both the sellers and buyers take the price as given.   This implies that a firm in a perfectly competitive market can sell any quantity at the market price of its product and so faces a perfectly price elastic demand curve.

ii.         The product sold is homogenous so that a consumer is indifferent as to whom to buy from.

iii.         There is free entry into the industry and exit out of the industry.

iv.         Each firm aims at maximising profit.

v.         There is free mobility of resources i.e.   perfect market for the resources.

vi.         There is perfect knowledge about the market.

vii.         There is no government regulation and only the invisible hand of the price allocates the resources.

Posted Date: 11/28/2012 5:02:43 AM | Location : United States

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