Market Structures Perfect Competition

Perfect Competition Pure competition A market with a large number of firms all producing essentially the same product. Assumes that the market is in equillibrium and that all firms sell the same product for the same price. However, each firms produces so little of the product compared to the total supply that no single firm can hope to influence prices.

Four Conditions for Perfect Competition Many buyers and sellers participate in the market. Sellers offer identical products. Buyers and sellers are well informed about products. Sellers are able to enter and exit the market freely.

Barriers to Entry Factors that make it difficult for new firms to enter a market. Barriers to entry can lead to imperfect competition.

Barriers to Entry Start-up Costs Technology The expenses that a new business must pay before the first product reaches the customer. Technology Some markets require a high degree of technological know-how. Years of training

Price and Output Perfectly competitive markets are efficient Competition keeps both price and production costs low Prices correctly represent the opportunity costs of each product. Output will reach the point where each supplying firm just covers all of its costs.