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Explain the features of a perfectly competitive market structure

      

Explain the features of a perfectly competitive market structure

  

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john
(a) Large numbers of sellers and buyers: each seller supplies only a small part of the total quantity offered in the market. Neither the buyer nor the seller can affect the price in the market. Price is determined by market forces of demand and supply,
and each individual firm consider price as given.
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Demand curve of individual firm would be infinitely elastic, indicating that the firm can sell any amount of output at the prevailing market price. Marginal revenue of firm under perfect competition will normally equal to the price.

(b) Product homogeneity:- the product of any one seller (i.e. firm) is identical to the product of every other firm in the market. There is no way in which a buyer could differentiate among the products of different firms.

(c) Free entry and exit of firms:- there is no barrier to entry or exit from industry seller and buyers are free to join or leave the market whenever they want.

(d) Profit maximization:- all firms in the industry aim to maximize profit. No other goals are pursued.

(e) No government regulation:- government does not interfere with the market through imposing tariffs, subsidies etc. the forces of demand and supply are the ones which are left to bring the market back to equilibrium.

(f) Free mobility of factors of production:- factors of production are free to move from one firm to another through out the economy. Labour is not unionized.

(g) Perfect knowledge. All sellers and buyers have complete knowledge of the conditions of the market. Information is free and cost-less. Under these conditions uncertainty about future development in the market is ruled out.
john3 answered the question on October 1, 2017 at 12:51


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