What is meant by Perfect competitions? State its features.
Perfect competition is defined as a market structure that consists of a large number of buyers and sellers such that no individual seller can influence the existing market price of the product. All the sellers in a perfect competition market produce homogenous products; that is, the output of all sellers is similar to each other and each firm sells its output at a uniform price.
The following are the features of perfect competition:
- Large number of buyers and sellers: Under perfect competition, there are a large number of buyers and sellers. The number of sellers is so large that no individual firm has control over the market price of the commodity.
- Free entry and exit of firms: There is no restriction on the entry and exit of firms. This free entry and exit of the firms ensure that no firm earns either abnormal losses or abnormal profits in the long run.
- Homogeneous product: The product of each and every firm in a perfectly competitive market is a perfect substitute for other products in terms of quantity, quality, colour, size, features, etc.
- Perfect knowledge: In a perfectly competitive market, the buyers are aware of the prevailing market price of the product at different places and the sellers are aware of the prices at which the buyers are willing to buy the product.
- Perfect mobility of factors of productions: In perfect competition, the factors of production are perfectly mobile. Such mobility implies that there is optimum utilization of the factors of production.
- Absence of transport cost: In a perfect competition it is assumed that there is no transport cost. This further ensures that there is a uniform price in the market.
- Single price: A single uniform price prevails under perfect competition which is determined by the interaction of demand and supply.
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