Perfect competition

          Perfect competition is defined as the market structure where there is a large number of buyers and sellers within the homogeneous products, selling at a uniform price. In this market, both buyers and sellers have perfect knowledge regarding price. Firms can not change prices according to different situations. The price of the product is determined by the industry and all firms under the industry have to accept the price determined by the industry. Therefore, the industry is called price maker and the firm is called price taker. In a perfect competition market, the seller can sell any amount of the commodity at the ruling price or existing price.

Mrs. Joan Robinson has said, ”Perfect Competition prevails when the demand for the output of each producer is perfectly elastic.”

According to K. E. Boulding, ”A Perfect Competition market may be defined as a large number of buyers and sellers all engaged in the purchase and sale of identically similar commodities, who are in close contact with one another and who buy and sell freely among themselves.”

Features of perfect competition: 

1. Large Number of Buyers and Sellers: In a perfectly competitive market, there are numerous buyers and sellers. This large number ensures that no single buyer or seller can control the market price.

2. Homogeneous Goods: All firms in a perfectly competitive market produce goods that are identical or homogeneous. This means that consumers view products from different firms as perfect substitutes.

3. Free Entry and Exit: Firms in a perfectly competitive market can enter or leave the industry freely. There are no barriers to entry or exit, which means that new firms can join the market when they see a profit opportunity, and existing firms can leave the market if they are incurring losses.

4. No Government Intervention: In a perfect competition scenario, there is an absence of government intervention. Prices are determined purely by the forces of supply and demand.

5. Perfect Mobility of Factors of Production: Factors of production, such as labor and capital, can move freely in and out of the industry. There are no restrictions or barriers to the movement of resources, which allows firms to adjust their production levels in response to market conditions easily.

6. Perfect Knowledge of the Market: Buyers and sellers have complete and perfect knowledge about the market. This includes information about the prices of goods and services, availability of products, and the cost structures of the firms.

7. Profit Maximization Objective: The primary goal of all firms in a perfectly competitive market is to maximize their profits. Firms aim to produce at a level where their marginal cost equals marginal revenue, ensuring that they are operating efficiently.