What is perfect competition?
Meaning. Perfect competition is a market situation in which there are a large number of buyers and sellers, firms sell a homogeneous product and there is free entry and exit. Product sells at a uniform price in the whole market (industry). No individual firm can influence the market price by its independent action because a firm is the only 'price-taker' and industry is the 'price-maker'. It implies no rivalry among firms. The firm, at this given price, can only decide how much quantity of the product to sell. As a result, demand (or AR) curve facing an individual firm is horizontal straight line parallel to X-axis as shown in Fig. 4.1. Perfect competitive market can be defined better in terms of its characteristics which are as under.
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