Theory of perfect competition, Microeconomics

Perfect competition has the following characteristics:

1. Large number of firms - There are a large number of firms in the market. Due to this each firm produces a very small fraction of the industry output. This is turn implies that a single firm cannot affect the market prices.

2. Identical products - All the firms in market produce and sell an identical product. The consumers cannot differentiate between the product of one firm and that of another.

3. Free entry and exit - New firms attracted by profit are free to enter the market while the existing ones suffering from losses are free to leave. Firms entering the market increase the supply of the good and reduce profit margins. Free exit reduces market supply and increases profit margins.

4. Perfect information - All firms are fully informed about the prices and costs of their rival firms. Buyers have full information about prices and other relevant factors.

Posted Date: 3/13/2013 1:07:54 AM | Location : United States







Related Discussions:- Theory of perfect competition, Assignment Help, Ask Question on Theory of perfect competition, Get Answer, Expert's Help, Theory of perfect competition Discussions

Write discussion on Theory of perfect competition
Your posts are moderated
Related Questions
Suppose a family earns £1,500 per month and can either pay £0.50 per square foot in monthly rent for an apartment in the private rental market, or accept a 1,500 square foot house

Capital: Broadly defined, capital represents tools that people use when they work, to make their work more efficient andproductive. Under capitalism, capital can also refer to a su

Find the highest interest rate: There are 2 entrepreneurs, Sally and Paul.  The return to their projects are given by: To finance the project, each entrepreneur needs

Inflation-Unemployment Trade-off under Rational Expectations : Robert Lucas (1972) pointed out another implication of the above hypothesis of adaptive expectations. Suppose in

Price elasticity is used in economics to determine the changes in price of goods and services. It measures the change in price demanded and quality supplied. Determinants of pri

given short run total cost curve :10q^2+4q=100 and short run marginal cost MC=20q+4 and market demand Q=100-p what''s the equation of the short run supply curve?

In the long-run equilibrium, each firm in a perfectly competitive industry will choose the plant size associated with minimum long-run average cost. Is this TRUE or FALSE? And why?

There are 2 brands of cell phones that are almost identical except for some minor features: the A-Phone and the Pomegranate. Part I Draw the demand curve for the A-Phone. Explain

When Stockwell Day was leader of the Canadian Alliance Party (which soon became the new Conservative Party) he wrote that "the national debt is mortgaging our children's future." A

How did fixed exchange rates and the Golden Standard affect the U.S. economy as well as other countries.