1. What are the characteristics for a pure competition firm?

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Expert Solution

There are 5 basic characteristics of a pure/perfectly competitive firm;namely:

1.Large number of buyers and sellers:There are many buyers and sellers in the market which ensures that no individual or group has any influence over the price.

2.Homogeneous product:Each seller must offer the same standardized product so after to avoid any preferential choices.

3.Free entry and exit:There are no legal,financial, technological,environmental or any such type of barrier in entry or exit to/from the industry.

4.Price takers:Price under perfect competition is determined by the forces of demand and supply and cannot be influenced by any individual/group.

5.Perfect knowledge of product and market:Every buyer and seller has complete knowledge of the products offered by each seller ,the price of the products offered for sale,the market conditions etc.

There may be a few other characteristics of a perfectly competitive market:

6.Perfect mobility of factors of production:The factors of production are freely movable between industries/markets/regions.

7.Absence of price control:Prices are fixed solely by the movement and shift of demand and supply and is not subject to any kind of intervention (for example:government intervention).

8.Absence of transport costs:In order to maintain price uniformity,there is no or negligible transport cost.

9.Single price:There is a uniform price prevelant in the market.

However,a perfectly competitive market is considered a myth.

Rahul Sunny answered 1 year ago

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