Perfect Competition Flashcards
What are the four market models ?
Pure competition
Monopolistic competition
Oligopoly
Pure monopoly
What differentiates the market structures
Number of firms in the industry
Production of standardised or differentiated product
Difficulty to enter or exit the industry
Explain the pure competition market model
Very large number of firms
Standardised product
Easy entry and exit to industry
Explain pure monopoly market model
One firm
Unique product
Entry and exit is completely blocked
Explain monopolistic competition market model
Large number of sellers
Differentiated product
Non price competition
Entry and exit easy
Explain oligopoly market model
Few sellers
Standardised or differentiated product
What are the number of sellers in pure competition
Verily large number of independent sellers
They offer products in larger markets
Why is pure competition products standardised
Identical or homogenous product
If price is the same consistency,Ed’s are indifferent about which seller to buy from
No non price competition
Explain the price takers of pure competition
No control over product price
Small fraction of the market produced by each firm
Competitive firm cannot change market price
Why is there free entry and exit in pure competition
There is no significant legal, technological, financial or other obstacles
Why is the pure competition model perfectly elastic
Firm cannot obtain a higher price by restricting its output nor increase its sales volume by decreasing its price
Firms are price takers
Market demand is downward sloping curve an entire industry can still affect price by changing total output
Individual firm cannot affect the price of product it is supplying
