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Eco Economics

EconomicsNEB 2076 (old course)

Define perfect competition.

2

Answer

· Based on the official syllabus and past papers
Updated
Quantity (units)Price (₹)ODemand (D)MR = AR = P
Perfect competition: A price-taker firm’s demand curve (horizontal at P = ₹0.01) and marginal revenue (MR) = average revenue (AR) = price (P).

Perfect competition is a market structure characterized by the following key features:

  1. Large number of buyers and sellers: No single buyer or seller can influence market price.
  2. Homogeneous products: All firms produce identical goods (perfect substitutes).
  3. Perfect knowledge: All market participants have complete information about prices and products.
  4. Free entry and exit: Firms can enter or leave the market without barriers.
  5. Price takers: Individual firms sell at the prevailing market price (demand curve is perfectly elastic, a horizontal line at market price).

In this structure, firms are price takers and produce where P = MR = AR (marginal revenue equals average revenue equals price). The market equilibrium is determined by the intersection of industry supply and demand curves.

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