Question

What is a perfectly competitive market, please explain (thoroughly). Why most industries are not perfectly competitive, explain and provide examples. Use your book to explain the different markets. **Important Information for Discussion Forum Topics: For the student to earn the full 100 points for each Discussion Forum Topic, ALL must meet the following criteria: 1. Submitted posts in a timely manner and in step with the posted topic calendar deadlines. Professional presentation is required with no grammar, spelling or punctuation errors. 2. Made good use of the principles and concepts presented in the chapter readings. 3. Provided adequate support and justification. 4. Applied a level of understanding expected of a college-level student. 5. When appropriate, additional examples were used to validate the responses given.

Answer 1

A perfectly competitive market is the type of market in which infinite number of firms are selling identical or homogeneous goods to infinite number of buyers in the market. There is free entry and exit of firms from the industry,. Since the good sold is homogeneous, the firms face a perfectly elastic demand curve for their good and are price takers in the market where price is set by the industry and the firms take these prices as given. The firms equate these prices with their marginal cost to determine the equilibrium level of output produced by the firm, Thus, the output produced in this industry represents allocative as well as productive efficiency in the market.

Most of the industries are not perfectly competitive because this represents the case of hypothetical markets which the base of understanding the imperfect markets in the economy. Except for the agricultural markets, there is no such examples of perfect competition where all the assumptions of perfectly competitive markets are satisfied. Thus, it is difficult to find such markets.