Thursday, April 26, 2012

Competitive Markets or Perfect Competition

Competitive Markets or Perfect Competition

Competitive Markets or Perfect Competition

Economics Revision Article Series

Authors

Under perfect competition there are many small firms producing an identical product. Also there are numerous buyers buying small quantities.
Under these conditions each producer faces a completely horizontal demand curve. There is a market price at which he can sell his entire produce and he cannot sell any of his items at a higher price.
Under such conditions, a profit maximizing firm will set its production at that level where marginal cost equals market price.
References

Paul Samuelson and William D. Nordhaus, Economics, 13th Edition,  McGraw-Hill, 1989

Read about the decisions and management practices of firms operating competitive markets

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