StudentShare solutions
Triangle menu

Perfect Competition - Essay Example

Nobody downloaded yet
According to the research findings the market with perfect competition is characterized by many small buyers and sellers such that none can influence market conditions; all firms are price takers. The products sold are identical and have close substitutes and this makes it hard for such a condition to be met for in reality, a market has differentiated products due to technological innovations. An example of such products includes agricultural products such as a bushel of wheat. Firms are free to enter or exit the market without any problem and also the factors of production are mobile. The market is also based on the assumption that all the participants have perfect information regarding the prices and quality of products. The buyers thus are able to make choices of the products they want to buy and the producers are aware of what the buyers want hence it is easy to decide on the quantity to produce. Since the participants have perfect information regarding the market and are free to enter and exit at any time, there are no transaction costs incurred in the exchange of goods. The profit maximization of the firms occurs where marginal revenue is equal to marginal cost and the market price is equal to marginal cost. Due to these conditions, it is very rare to have perfect competition although technological advancements are driving markets towards such a situation. For example, the trade in currency or money markets where participants are assumed to have perfect information and currency is same regardless of where it is being traded. Another characteristic of such a market is non-existence of externalities. According to Nicholson (2005), perfect competition ensures optimum allocation of resources in the economy. Since price is equal to the marginal cost, consumer and producer surplus can be maximized. If a producer finds that the output is not bring in revenue, he/she can top producing the product and put the resources into more profitable use especially because there are no barriers to entry or exit. In this situation, no one can be made better off without making someone else worse off. For example, if production of wheat is not profitable, the producer can shift to production of other grains and in the process may lay off some staff and recruit others with the required skills. Competition also pushes prices down and makes the producers to find ways of producing at minimum cost hence productive efficiency is achieved (Geoff, 2006). The supply curve of a perfect market is the marginal cost curve and the demand curve is the price line which is equal to average revenue and marginal revenue. Since the price remains the same regardless of quantity produced, the demand curve is horizontal. In the short run, firms make abnormal profits as total revenue is greater than total costs thus attracting entry of new firms into the market especially due to lack of entry barriers. As firms enter the market, the market supply curve shifts outwards pushing the prices down consequently lowering the profits by firms. Since each firm earns sufficient revenue to cover variable costs, some firms may shut down to avoid paying variable costs as revenue is low but they still continue paying fixed costs (Mankiw, 2011). The fixed costs ...Show more


This research will begin with the statement that there are various types of market systems in an economy such as monopoly, oligopoly and free markets depending on the number of buyers and sellers in the market as well as the type of products traded. …
Author : fdubuque
Perfect Competition essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Perfect Competition"
with a personal 20% discount.
Grab the best paper

Check these samples - they also fit your topic

Perfect Competition/Microeconomics
In economics, a perfect market is defined by several conditions: homogeneous product, free entry and exit of firms, absence of transaction/transport costs, large number of sellers and buyers, perfect knowledge. The perfectly competitive market only exists when all participants are price takers and none of them influence the price of the product.
4 pages (1000 words) Essay
Perfect Competition
It is these market structures which determine the behavior of the firm in that industry. Perfect competition is on one extreme of the spectrum. Although it may not exist in our world today it plays an important role as a model to study when analyzing levels of competition.
7 pages (1750 words) Essay
Perfect Competition and Monopoly
So the goal of the firm is profit maximisation. We shall study the two types of markets – perfect competition and monopoly, and discuss why in the long run the former earns normal profit but the later earns more than that. Perfect competition is a type of market which fulfils all these five assumptions.
10 pages (2500 words) Essay
Monopoly and Perfect Competition Markets
He has to give up “X” for “Y” so as to maximize his utility. There are other impediments also that force him to make rational decisions while choosing or allocating resources. Monopoly and perfectly competitive market are the two extreme continuum of market structures in which one can either get benefited or worsen off.
5 pages (1250 words) Essay
Perfect Competition and Monopoly
One needs to find a trade off to maximize his utility. Besides that, there are several hindrances which force him to make rational decisions while apportioning resources effectively. This principle segregates market into two extreme continuums of market structure which are Monopoly and perfectly competition.
5 pages (1250 words) Essay
Monopoly and Perfect Competition
As monopoly proceeds, the consumers will ultimately forego the product, especially consumers who value the product or service more than they value its cost. This tends to create a deadweight loss. The deadweight loss also indicates that the combined surplus for the monopolists and the consumers is always lower than that for perfect competition.
4 pages (1000 words) Essay
Perfect competition and monopoly power
Which form of market is better can be subject matter of discussion and is controversial issue. Perfect market is the starting point around which other market forms should revolve or regulated. The case study of Microsoft Corporation with its monopolistic product in application software used in every computer is given below to highlight the model of Monopolistic from of market.
3 pages (750 words) Essay
Perfect Competition
4. Sellers and Buyers have perfect awareness of the market. Which mean producers are completely conscious of the prices, costs and market prospects. Similarly Buyers are fully conscious of the worth, quality and accessibility of the good. (Sloman, p. 157)
8 pages (2000 words) Essay
Perfect competition and the consumer
Price Takers: The number of firms in these types of market are numerous, and contribute to very little of the total industry. The firms face horizontal demand curve at the market price and the prices are
4 pages (1000 words) Essay
Perfect Competition
The point of intersection corresponds to the lowest point on each firm’s long-run average cost curve (LRAC). In the long run, competition forces a firm to adjust its scale until it achieves minimum average cost. The reason is that
2 pages (500 words) Essay
Hire a pro to write
a paper under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
Comments (0)
Click to create a comment
Contact Us