Question

Investigate the characteristics of the model of perfect competition 

Answer 1

Internet service providers are an example of perfect competition where there is a large number of buyers and sellers along with no barriers to entry and exit. They all provide the same service to the customers (internet) hence fulfilling the characteristic of homogenous goods. Another example can be of the agricultural markets where all farmers sell their produce again homogenous goods(vegetable or fruit). There is a large number of farmers and buyers who come to sell and buy the product and there are no restrictions in the entry or exit to the local market for the farmers. The local fish market is also an example of perfect competition. Internet service providers and local vendors are all price takers as if they increase their price they will lose their customers hence revenue, this induces them to take the equilibrium price as price equal to marginal cost determines the output level. Therefore the demand curve in perfect competition is horizontal.