ECON101 Lecture : Chapter 12 - Perfect Competition.docx
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ECON101 Full Course Notes
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Many firms sell identical products to many buyers. There are no restrictions to entry into the industry. Established firms have no advantages over new ones. Sellers and buyers are well informed about prices (perfect information) The firm"s minimum efficient scale is small relative to market demand, so there is room for many firms in the market. Each firm is perceived to produce a good or service that has no unique characteristics, so consumers don"t care which firm"s good they buy. In perfect competition, each firm is a price taker". A price taker is a firm that cannot influence the price of good or service. There is no single firm that can influence the prince therefore, it must take the equilibrium market price. Each firm"s output is a perfect substitute for the output of the other firms, so the demand for each firm"s output is perfectly elastic.