Perfectly Competitive Markets
* Characteristics of Perfectly Competitive Markets
1. Price taking
2. Product homogeneity
3. Free entry and exit
* Price Taking
- The individual firm sells a small share of total market output and, thus, cannot influence the market price.
- The individual consumer buys too small share of industry output to have any impact on market price.
* Product Homogeneity
- The products of all the firms are perfect substitutes.
* Free Entry and Exit
- Buyers can switch easily from one supplier to another.
- Suppliers can enter easily or exit a market.
- Possibility of other objectives
1) Revenue maximization
2) Dividend maximization
4) Short-run profit maximization
- Implications of nonprofit objective
- Long run profit maximization is valid and does not exclude possibility of altruistic behavior.