The key conditions for the perfect competition are a s follows:
1. There are many buzzers and sellers in the market, each of which is small relative to the market.
2. each firm in the market produces a identical product
3. buyers and sellers have perfect information
4. there are no transaction costs
5. there is free entry into and exit from the market
Taken together, the first four assumptions imply that no single firm can influence the price of the product. The fact that there are many small firms, each selling an identical product, means that customers view the products of all firms in the market as the perfect substitutes. Because there is perfect information, consumers know the quality and price of each firm’s product. There are no transaction costs (such as the cost traveling to a store); if one firm charged a slightly higher price than the other firms, customers would not shop at that firm but instead would purchase from a firm charging a lower price. Thus, in a perfectly competitive market all firms charge the same price for the good, and this price is determined by the interaction of all buyers and sellers in the market.
The assumption of free entry and exit simply implies that additional firms can enter the market if economic profits are being earned, and firms are free to leave the market if they are sustaining losses. This assumption implies that in the long run, firms operating in a perfectly competitive market earn zero economic profits.
One classic example of perfectly competitive market is agriculture. There are many farmers and ranchers, and each is so small relative to the market that he or she has no perceptible impact on the prices of corn, wheat, pork or beef. Agricultural products tend to be homogeneous; there is little difference between corn produced by farmer Jones and corn produced by farmer Smith. The retail mail-order market for computer software and computer memory chips also is close to perfect competition. A quick look at the back of a computer magazine reveals that there are hundreds of mail-order computer product retailers, each selling identical brands of software packages and memory chips and charging the same price for a given product.
Ďaľšie referáty z kategórie
Perfect competition and monopoly
|Referát vhodný pre:||Stredná odborná škola||Počet A4:||2.3|
|Priemerná známka:||2.94||Rýchle čítanie:||3m 50s|
|Pomalé čítanie:||5m 45s|