Characteristics of perfect competitive firm

Characteristics of perfect competitive firm –

  • Infinite Sellers

Infinite customers with the willingness and ability to buy the product at a certain price, Infinite producers with the willingness and ability to supply the product at a certain price. Neither buyer nor seller can influence upon the price of the product as individual sellers have insignificant amount of market share and individual buyer can buy small amount of goods.

  • Freedom to leave or Enter Market

This means that there are no restrictions for a firm to enter or leave the market. If the existing firm experiences positive economic profit. It cannot prevent new firms from entering the market. On the other hand if the existing firm faces loss, it is free to leave he market. Since firms are free to leave and enter the market, there is always a large number of sellers and buyer in the perfectly competitive market. The freedom is only meant for the long run. In the short run however firms cannot leave or enter market freely.

  • Perfect Information

Every firm and buyers is assumed to have perfect information regarding the goods available in the market and the price fixed. With perfect information available, sellers will not sell goods at a price lower than the market price. Meanwhile , buyers will not purchase goods at a price higher than the market price.

  • Good produced arc Homogeneous

Every firm in the perfectly competitive market producers homogeneous goods. This means the buyers are not able to differentiate the goods sold in the market. The most important implication of this characteristics is firms arc not given any power in determining the price. Therefore firms act only as the price taker.

  • Transactions are cost less

Buyers and sellers incur no cost in making an exchange [perfect mobility]

  • Firms Aim to Maximum

Firms aim to sell where marginal costs meet marginal revenue where they generate the most profit.

  • Price taker

In the market both buyers and sellers are price taker.

  • Perfect Mobility of factor

In perfectly competitive market it is assumed that factors of production can move across market and across country.