Research Paper on Perfect Competion Example | Topics and Well Written Essays - 1000 words

On Perfect Competion - Research Paper ExampleThey all sell like products, and the seller is a set taker, not price maker (Jain & Trehan, pp. 243). The characteristic of price taker signifies that the price is set by the interaction of demand and supply in the industry, and no individual incorruptible can increase or decrease the price (Jain & Trehan, pp. 243). As mentioned above, pure(a) competition is mainly based on original assumptions and as such, it does not exist widely in the real world (Dwivedi, pp.294). Perfect competition is based on the assumption of perfect mobility. The specimen assumes that in that respect is perfect mobility of factors of production between firms. at that place are, therefore, no restrictions on the movement of labor from one firm to another and there is no trade essence either. In addition, no firm can control industrial input hence, there is perfect mobility of capital as well. Another concept common to perfect competition is the deliver en try and exit of firms in the industry. This sheds light to the fact that there are no legal, financial or market barrier for whatever firm to enter or exit the industry. Firms can choose to enter or exit at their free will. When the industry is enjoying abnormal profits, that is when the short stripe average cost is less than the price, and then firms enter the industry. However, when the abnormal profits are transferred into normal profits or losses, then firms leave the industry (Dwivedi, pp. 297, 298). This model makes a further assumption that there is perfect knowledge. This suggests that there is no uncertainty in the market, and information regarding the market is readily available and is free of cost. In addition, firms act independently and they do not collude with each other in any way. Furthermore, there is no government intervention in perfect competition. There are no discriminatory taxes or subsidies, government does not put up a maximum or minimum price and does not have any sort of direct or indirect control. Such characteristics make this model preposterous (Dwivedi, pp. 297). The demand carouse of a suddenly competitive firm is horizontal this signifies that the firm can sell as much as it wants at the prevailing market price (Dwivedi, pp. 298-300). Any firm in perfect competition is so insignificant that it absolutely has no influence over price. The diagram is shown below. (McEachern, pp. 23-25) This characteristic of perfect competition also makes it unique in all types of market structures. In addition to that, perfect competition is used as a useful benchmark to judge the efficiency of markets. There are two broad concepts of efficiency, allocative efficiency and productive efficiency. Productive efficiency occurs when the firm is producing at the minimum of its grand run average cost curve (LRAC). This signifies that the cost is less than the market price of a certain product. In perfect competition, output is produced at the mini mum of average cost in the long run. Allocative efficiency, on the other hand, ensures that producers are making the right things that consumers actually want. The market in perfect competition is left to the forces of demand and supply. These forces ensure that what the consumers want, they would get. This avoids wastage of resources. In sparing technicality, allocative effi