Perfect Competition

Characteristic of Perfect Competition:

• Numerous numbers of small firms : There are many firms and each firm is relatively small in size.
• Standardized product : Product is identical or homogenous.
• Free entry and exit : There is no barriers to entry or exit the market.
• Perfect information : Sellers and buyers have full access to information regarding the product.
• Price taker : Each firm is a price taker. It can sell as many products as it wants at the market price. Each firm has no market power.

Demand

• The firm is a price taker so it can sell as much product as it wants at the market price.
• No matter how many product the firm can sell, it still receives the market price. Thus the demand for a perfectly competitive firm is perfectly elastic