Question

MBA - Managerial Economics

Explain the features of Perfect Competition with examples.

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Answer 1

There are different features of the perfect competition. The one feature is that sellers are price takers with a perfectly elastic demand curve. For example, agricultural producers sell their goods at a prevailing prices and if they charge higher prices, then buyers go to other sellers. The second feature is that it has free entry and exit from the market. In fruits and vegetables market, any person can come and sell one day and continue, though the seller can disappear as well if getting losses. The third feature is that it has zero economic profit in the long run. It is due to the reason that firms enter when other firms make profit and firms exit when other firms make losses. The next feature is that products are homogeneous in nature. It is also exemplified by the agricultural products. Though, in practical world, firms try to differentiate on the basis of quality, cleanliness and look, though the products can remain homogeneous.