■ Price control
■ Conditions of entry
■ Non-price competitionPure Competition/Perfect Competition
Perfect competitionis a market structure characterized in a distinct way:
■ Number of firms:There are many perfectly competitive firms. A large number of these firms act independently
of one another. These organizations offer their products domestically as well as internationally. Agricultural busi-
nesses are one example.
■ Type of product:Perfectly competitive firms produce an identical or homogeneous product. As long as prices
are the same as their competitors, consumers will have no preferences for a product or a firm. Consumers view
perfectly competitive firms as perfect substitutes for one another because they all make the same product. Perfectly
competitive firms make no attempt to differentiate their products or compete in any fashion because of the existence
of a market price.
■ Price control:Perfectly competitive firms have absolutely no price control. They are referred to as price takers.
A price-taking firm enters the market accepting the market price rather than setting its own price. If a perfectly
competitive firm attempts to set its own price, it will soon fail as a business. Asking a higher-than-market price
would not be in the best interest of the firm because consumers would quickly substitute. There would be no rea-
son for the firm to ask for lower than the market price because the firm is already selling all its quantities at the
market price. Asking for a lower price would deprive the firm of revenue.
■ Conditions of entry: The conditions of entry for a perfectly competitive firm are free and easy. A new firm can
join the market without barriers or obstacles. New firms can freely enter the market, while old firms can leave
without much difficulty in liquidating their assets. No significant monetary, legal, or technological hurdles stand
in the way of a perfectly competitive firm.
■ Non-price competition:In a perfectly competitive market, non-price competition does not exist. Firms are con-
tent with the market price and quantities offered.The Demand for a Perfectly Competitive Firm
The demand for a perfectly competitive firm has little to do with prices. Because a company accepts the market price,
the demand for its products varies in quantities at one price (the market price). The perfectly competitive firm has what
is called a perfectly elastic demand. The firm cannot obtain a higher profit by raising its price or restricting its output.
It is important to remember that the marketdemand curve for a perfectly competitive firm is downward sloping and that
the individual firm’s demand curve is perfectly elastic.
Figure 10-2 illustrates the market and an individual firm’s demand curves.
Figure 10-2Quantity The Individual Firms Demand Curve
For Perfect Competition.The Market Demand Curve
For Perfect Competition.PriceQuantityMarket
PriceProduct Markets and Profit Maximization