Question

State the assumptions of Perfect Competition.

Hint:

Perfect competition is a theoretical market structure where firms cannot influence the price of goods, and all firms produce identical products.

Answer 1

The assumptions of perfect competition are as follows:
- Large number of buyers and sellers: There are so many firms and consumers that no single participant can influence the market price.
- Homogeneous products: All products are identical, and there is no differentiation between the goods sold by different firms.
- Free entry and exit: Firms can freely enter or exit the market without barriers, ensuring long-run equilibrium.
- Perfect information: All buyers and sellers have complete knowledge of market conditions, prices, and product quality.
- Price takers: Individual firms cannot set their own prices; they must accept the market price as given.