Antonioni and Flynn 2007 define perfect competition as a situation where numerous small firms producing identical products postulate against each other in a given industry. correct competition leads to a firm producing the socially optimal create level at the minimum possible cost per social unit. (Economies for dummies pg 367)
When we begin to look at the market place in todays economy, we can see that firms face a wide degree of competition. At one extreme, we see clarified monopoly, which is when one firm dominates the market place and is regarded as the wrong maker. In perfect competition, market businesses can be seen to be the complete opposite of a monolpy and are described as determine takers.
Economists would suggest that the following basic assumptions are necessitate to be present if perfect competition is to exist in the real world.
These basic assumptions are:
1)A large get along of buyers and sellers, so the market price is beyond the influence of either single buyer or seller.
2)There is a liberty to and exit from the industry
3)All buyers and sellers have perfect knowledge of prices in the market
4)All firms sell a homogeneous product
(AS & A2 level, Etherington et al, page 36)
When the preceding(prenominal) assumptions are present, they produce a situation where by psyche firms have no control over the prices that they charge. Etherington et al states that these characteristics taken together lead to the conclusion that the individual firm is a price taker, i.e. The firm is too small a get around of the market to be able to affect the market price by its own...If you want to get a full essay, raise it on our website: Orderessay
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