Perfect Competition

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  • An idealized market structure with the following assumptions: (a) buyers and sellers have perfect knowledge of what is going on in the market place, (b) there are many buyers and sellers, (c) there is unrestricted entry into and out of the market, (d) the good in question is homogeneous (of the same quality), and (e) the seller of the product has limited or no control over the price (price taker) in the marketplace because of competition. The perfect competitor, therefore, faces an infinitely elastic demand curve, which is equal to his or her marginal revenue and average revenue.

    The idealism of perfect competition serves the useful theoretical purpose of explaining why competition in the marketplace leads to an efficient outcome in the long run when all ...

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