Perfect Competition Summary

Module Overview

  • Semester 2 Overview:

    • 5 topics covered over 9 weeks.

    • Focus on perfect competition and monopoly.

  • Assessment:

    • Cumulative final exam.

    • Mock exam released one month prior.

Market Structure

  • Market structure affects buyer-seller interactions.

  • Analysis:

    • Positive: Quantity and price.

    • Normative: Evaluating market outcomes.

Key Features

  1. Number of Firms: Many, few, or one.

  2. Entry and Exit Barriers: High or low.

  3. Product Differentiation: Homogeneous or differentiated.

Market Structure Overview

  • Perfect Competition: Many firms, homogeneous products, free entry/exit, no price-setting power.

  • Monopolistic Competition: Many firms, differentiated products, relatively easy entry/exit, limited price-setting power.

  • Oligopoly: Few firms, homogeneous or differentiated products, restricted entry/exit, limited price-setting power.

  • Monopoly: One firm, unique product, blocked entry/exit, significant price-setting power.

Perfect Competition

  • One extreme of the competition spectrum (opposite of monopoly).

  • 'Perfect' refers to market structure facilitating competition.

Key Features

  1. Many small buyers and sellers.

  2. Identical products.

  3. Free entry and exit.

  4. Full information.

  5. Negligible transaction costs.

Why Study Perfect Competition?

  1. Many markets are reasonably competitive.

  2. It serves as a benchmark for comparison.

Price Taking Behavior:

  • Firms are price takers: P = MR.