Why Is Perfect Competition Often Described as the Ideal Market Structure?

Perfect competition is a type of food trade organise where a large number of humble squares producing identical products postulate without any(prenominal) significant impact on hurts or supply. thither several factors which are followed in this particular model. Goods which are produced by the firms dont have any product differentiation, in other words, they are homogenous and could substitutes each other in consumptions. As firms dont have any market power and cant influence footings due to their small size, rival companies wont be following any changes in price, so customers are more likely to thrust to another product which is the same and has a lower price if one product would become more expensive. It meaning that the pray for the product is very elastic. So each small firm is a price taker, and market sets the equilibrium price for the product. [pic]On the plat which represents an industry a market supply curve intersects with market demand curve. The point of intersection is an equilibrium price. By expression at this diagram any small firm magnate decide to produce more getup, as it go out be insignificant for the market as long as the price will be the same for all of the output produced. So, as it is seen from the diagram representing firms supply, D=AR=MR.

It means that if the firm will sell all of its output at the same price P, average revenue will be the same as marginal revenue-the extra revenue which comes from selling one more unit of output. In highly matched market situation like perfect competition MR=Price, however, down the stairs imperfect competition for a profit maximizing company, MR exponent decrease as output will go up because the price will fall. At point A on the diagram above, output is less than profit maximizing output Q*, so profit is less. At point B, profits will decrease because costs to produce the output are higher. So Q* is the output which a profit-maximizing company should produce. So companies operate under perfect competition dont really... If you indigence to get a full essay, order it on our website: Orderessay

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