Question

What are the conditions for a perfectly competitive market? What are some real-life examples of perfectly competitive markets? What are economic profit-maximizing strategies that may be made by a perfectly competitive firm? Identify a good that you regularly purchase and you feel is in perfect competition – how do the characteristics of the goods and the market structure it operates in affect the firm’s ability to change the price?

Answer 1

Following conditions for a perfectly competitive market:

• There are a large number of buyers and sellers in the market.
• Price is determined by the demand and supply forces prevailing in the market.
• firms are only price takers.
• Products are homogenous.
• selling is zero.

The agricultural market is considered as analogous to the perfectly competitive market. Under the perfectly competitive market, profit is maximized where P = MC.

Wheat can be considered as the product of a perfectly competitive market. it is homogenous and sold by the many sellers. Thus, there is no use of making expenditure on the advertisement. Individual firms do not have control over the price.