Other
Perfect Competition Market Structure Essay Plan
- Module
- Principles Of Microeconomics
- Institution
- Loughborough University (LU)
Essay Plan/Structure for an essay on the topic of the perfect competition market structure
[Show more]
Seller
Follow
Content preview
Introduction:- Perfect Competition Market Structure is not perfect however is perfect for competition
- Give Market Structure of Perfect Competition:
1. Many buyers who are all informed of prices
2. Many small sellers
3. Low barriers to entry
4. Undifferentiated Products (homogeneous products hence can substitute perfectly)
- What are the conditions for equilibrium in perfect competition: when sellers produce as
much as buyers want to purchase and when buyers purchase as much as sellers choose to
produce.
Main Body:
- Assumptions of Perfect Competition:
1. Buyers are price takers: each buyer takes the price given and believes they can buy as
much as they want that price without influencing it. This implies there are many buyers.
2. Buyers and Sellers have complete information: sellers can respond to incentives of theirs
and of buyers. Buyers have the greatest chance to receive what they want from the
market.
3. Sellers are price takers: each seller believes its output will not affect market price; hence
each seller believes it can sell as much as it wants at this price without influencing the
market price as well as believing its output choice will not trigger a reaction from rivals
4. Entry is Free: A potential seller can enter the market in the long run without incurring
costs that an incumbent seller would not incur. As entry is a LR decision where all factors
of production must be variable this assumption implies
Sellers are in the market if they have capital, and they can increase their output
by employing more labour
A potential seller cannot produce with just labour; they must have capital first
- What do the conditions for equilibrium in perfect competition mean:
1. The market price is determined by market supply & demand
2. A seller’s output is determined by seller-specific supply & demand
- The short run equilibrium supply curve of a firm (MC curve) is derived from the marginal
output rule (MR=MC is profit max output where firms produce) and SR shutdown rule (p>
AVC)
- Diagram for the SR equilibrium of perfect competition:
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller vibhavpandey. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £2.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
67474 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy revision notes and other study material for 14 years now