ECONOMICS

Economics



Economics

Perfect competition

Perfect competition is a term used in economics, to refer to markets where the companies lack the power to manipulate the price in the market (price takers), and there is welfare maximization, resulting in an ideal situation of the markets of goods and services in which the interaction of supply and demand determines the price. In a perfectly competitive market, there are plenty of buyers (demand) and sellers (supply), so that no individual buyer or seller exerts decisive influence on the price.

Perfect competition is a type or model of the market in which there are many sellers and buyers who are willing to sell or buy products freely between them are uniform or equal in a given market (like the market for copper, wood, wheat or other commodities. Agricultural commodities, financial securities or products that well known and standardized), but no discernible influence on the selling price because it is so impersonal set by the market in which the information circulates perfect way so that buyers and sellers well informed.

In addition, this market vendors do not devote much time to develop a marketing strategy or to implement activities related to it, such as market research, product development, pricing and promotional programs, because they play a negligible role or none at all. Finally, taking into account the conditions described above, the vendors have a demand curve horizontal or perfectly elastic (Bain, 2000).

Competitive Market

Competitive firm simply chooses an achievable action to maximize its profit. However, a competitive firm's decision problem can be viewed as a strategic problem with only one agent. In this section, we review how a competitive firm behaves in reaction to market conditions and how this reaction can be considered a fundamental form of strategic behavior. Some of the basic arguments we discuss in this section will help us understand more complicated strategic interactions under different market structures (David, 2005).

Speaking, a competitive firm, does not have market power to influence the market price. One interpretation of this simplified assumption is that there are many similar firms in the market, and each firm is too small to have any significant impact on the market outcome. When making a decision, such as how much to produce in the upcoming production period, a competitive firm, however, still needs to evaluate the economic environments it will face. The main factors, which dictate how a competitive firm behaves, are the prices of its inputs and outputs.

For example, when the price of an input increases, firms decrease output. On the other hand, when the economy grows, and the price of the output increases, Individual producer will increase its output as a response to a higher price. When a firm decides how much to produce, it will weigh the benefit and cost of its principal activity.

To a competitive firm, the benefit of producing one more unit of its output is its marginal revenue, which given by the market price, while its cost for producing one more unit of its output is its ...