Question

Explain the implications of large number of sellers in a perfectly competitive market.

Answer 1

In a perfectly competitive market, there exists a large number of sellers. The number of sellers is so large that no individual firm has control over the market prices. Any individual firm acts only as a price taker while the price is determined by the ‘invisible hands of the market’, that is, by the forces of demand and supply of the commodities. Thus, no individual firm can influence the market price. Each firm sells their individual output at a uniform market price. If an individual firm attempts to raise its price, then it will lose all its buyers to other firms and vice-versa. Thus, the firms have no role to play other than supplying the required output at the existing market price. Therefore, the implication of large number of firms in a perfectly competitive market is the existence of a uniform price in the market with each individual firm (seller) is a price taker.