Perfect competition

Perfect Competition Short Run Chapter 10-1

A Perfectly Competitive Market A perfectly competitive market is one in which economic forces operate unimpeded.

A Perfectly Competitive Market A perfectly competitive market must meet the following requirements: ,[object Object]

There are no barriers to entry.

The firms’ products are identical.

There is complete information.,[object Object]

Price Taker A firm in a perfectly competitive market is said to be a price taker because the price of the product is determined by market supply and demand, and the individual firm can do nothing to change that price.

The Necessary Conditions for Perfect Competition Both buyers and sellers are price takers. Aprice taker is a firm or individual who takes the market price as given. In most markets, households are price takers – they accept the price offered in stores.

The Necessary Conditions for Perfect Competition Both buyers and sellers are price takers. The retailer is not perfectly competitive. ,[object Object],[object Object]

Any one firm's output is minuscule when compared with the total market.,[object Object]

Barriers sometimes take the form of patents granted to produce a certain good.,[object Object],[object Object],[object Object]

Any technological breakthrough would be instantly known to all in the market.,[object Object]

Perfect Competitors’ Demand Curve The result is that the individual firm perceives the demand curve for its product as being perfectly horizontal.

Market supply Price Price $10 $10 8 8 6 6 4 4 Market demand 2 2 0 0 10 20 30 1,000 3,000 Quantity Quantity Market Firm Individual firm demand Market Demand Versus Individual Firm Demand Curve

Market Supply and Demandand Single-Firm Demand

Perfect competition

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