Question

1briefly describe the essitial characteristics of perfectly competitive arkets and perfectly competitive firms

Answer 1

1. Large number of buyers and sellers.- The first and the important characterstic of the perfect competition is the large number of buyers and sellers. This means that a single firm's decisions cannot affect the market price, no firms can able to exert pressure on the market price. If one firm changes the price it will not affect the market

2. Homogenous products- In perfect competition the firms are selling the homogenous products that is identical products. The products they they produce is perfectly the same, means here is the products are perfect substitutes for each other. If one firm changes the price the customers substitutes with another product.

3. Perfect resource mobility- The perfectly competitive firms can accquire labor, capital and any other resources without any delay.

4. Perfect knowledge of the market condition- The buyers and the sellers are aware of the prices in the market so no firm cannot charge a higher price. They have perfect knowledge about the price, quality, technology and utility

5. free entry and exit: There is no barriers to entry and exit, the firm can ener or leave the market at any time.

6. No transaction costs- The buyer and seller dont occur any transaction cost when they exchange goods and services in the market.

7. Price taker- The producers are the price takers in the perfectly competitive economy and they cannot influence the market price. If a firm charges a higher price the customers will substitute the products with other one.

8. The producers contributes insignificantly to the market- The firm's production level donot change the aggregate supply in the market.

9. There is normal profits in the long run- If there is any positive economic profits new firms will continue to enter the market until the profit become close to zero.