Competition Term Paper Example | Topics and Well Written Essays - 1500 words

Competition - Term Paper Example The market price in a perfect competition is determined by the market forces namely, the demand and supply of the products. The features of perfect competition are as follows, There are a large number of buyers and sellers in a perfect competitive market that neither a single buyer nor a single seller can influence the price. The price is determined by the market forces namely the demand for the supply of the products. Thus the sellers in the perfectly competitive market are price takers and quantity adjusters. The products produced by all the firms in a perfectly competitive market must be homogenous and identical in all respects i.e. the products in the market are same in quantity, size, taste etc. The products of different firms are perfect substitutes and the cross elasticity is infinite. Both the buyers and the sellers are fully aware of he current price in the market. Therefore the buyer will not offer higher price and the sellers will not accept a price less than the one which is prevailing in the market. There must be complete freedom for the entry of new firms or the exit of the existing firms from the industry. In times of profits, new firms will enter into the markets and in time of loss the existing firms will leave the industry. In a perfect competition it is assumed that there are no transportation costs. Because in perfect competition, a commodity is sold at same price throughout the market. So if transportation costs are incurred firms closer to the market will charge a lesser price than the firms far away. So, it is assumed that there are no transportation costs. Under perfect competition price is determined by the market forces namely the demand for and supply of the commodities. Hence there is uniform price in the market. As a result the average revenue is perfectly elastic. The AR curve is horizontally parallel to x-axis. Since the average revenue is