Question

What is meant by Perfect Competition Market ?

Hint:

Under perfect competition, the firm's demand curve is a horizontal straight line, meaning \( Price = AR = MR \).

Answer 1

Step 1: Understanding the Concept:
It is a theoretical "ideal" market form where no single buyer or seller has the power to influence the market price.
Step 2: Detailed Explanation:
The characteristic features of such a market are:
1. Large Number of Buyers and Sellers: An individual seller’s share is so small that they cannot affect the total supply.
2. Homogeneous Product: All firms sell identical products (e.g., pure salt or wheat), so buyers are indifferent between sellers.
3. Free Entry and Exit: Firms can enter the industry when there are profits and leave when there are losses without any legal barriers.
4. Perfect Knowledge: Everyone knows the prevailing price and the quality of the product.
5. Price Taker: The firm must accept the price determined by industry-wide demand and supply.
Step 3: Final Answer:
Perfect competition is a market situation characterized by complete transparency, identical products, and zero market power for individual participants.