Knowra Perfect competition Perfect competition Perfect competition is an idealized market structure with many buyers and sellers, identical products, and free entry and exit. Individual firms accept the market price because no single firm can influence it.
Price taker : A buyer or seller that accepts the prevailing market price rather than setting it. Each firm treats the market price as given because its own output is too small to change it.
Homogeneous product : A product that buyers regard as identical across sellers. With interchangeable goods, an individual firm cannot charge more than the common market price.
Allocative efficiency : An outcome in which resources produce the mix of goods consumers value most, given available costs and preferences. In the benchmark equilibrium, price equals marginal cost, matching buyers' marginal willingness to pay to production cost.
Monopoly : A market structure in which one seller controls the supply of a product without close substitutes. Unlike competitive firms, a monopolist can restrict output and influence price.
Agricultural markets : Markets for farm products, including crops, livestock, and other agricultural goods. Some standardized commodity markets approximate the model, though transport, policy, and product differences matter.
Marginal revenue : The additional revenue a firm earns from selling one more unit of output. For a competitive firm, each extra unit sells at the market price, so marginal revenue equals price.
Free entry and exit : The absence of substantial barriers preventing firms from entering or leaving an industry. Entry and exit drive long-run economic profit toward zero in the model.
Productive efficiency : Production at the lowest attainable average cost for a given level of output. Long-run competitive equilibrium places surviving firms at minimum average total cost under standard assumptions.
Monopolistic competition : A market structure with many firms selling differentiated products and relatively low barriers to entry. Product differentiation gives firms some pricing power absent from perfect competition.
Commodity market : A market for standardized primary goods that are interchangeable across producers. Standardization can make certain commodities closer to homogeneous products than differentiated retail goods.
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