User:Rafael abdalla

Market structure

I. Perfect Competition

In economic  theory,  perfect  competition  describes  markets  such  that  no  participants  are  large  enough  to have  the  market  power  to  set  the  price  of  a  homogeneous  product. Because the  conditions  for  perfect competition  are  strict,  there  are  few  if  any  perfectly  competitive  markets. Specific characteristics  may include:

1. Infinite buyers  and  sellers  - Infinite  consumers  with  the  willingness  and  ability  to  buy  the  product at  a  certain  price,  and  infinite  producers  with  the  willingness  and  ability  to  supply  the  product  at  a certain  price.

– Infinite  consumers  with  the  willingness  and  ability  to  buy  the  product at  a  certain  price,  and  infinite  producers  with  the  willingness  and  ability  to  supply  the  product  at  a certain  price.  Zero entry  and  exit  barriers

– It  is  relatively  easy  for  a  business  to  enter  or  exit  in  a  perfectly competitive  market.

2. Perfect factor  mobility  -  In  the  long  run  factors  of  production  are  perfectly  mobile  allowing  free long  term  adjustments  to  changing  market  conditions.

3. Perfect information  -  Prices  and  quality  of  products  are  assumed  to  be  known  to  all  consumers and  producers.

4. Zero transaction  costs  -  Buyers  and  sellers  incur  no  costs  in  making  an  exchange  (perfect mobility).

5. Profit  maximization  -  Firms  aim  to  sell  where  marginal  costs  meet  marginal  revenue,  where  they generate  the  most  profit.

6. Homogeneous  products  –  The  characteristics  of  any  given  market  good  or  service  do  not  vary across  suppliers.

7. Constant  returns  to  scale  -  Constant  returns  to  scale  ensure  that  there  are  sufficient  firms  in  the industry