Chapter 9.1, Problem 2R

To determine

To state: The conditions to be met for perfect competition to exist.

Answer to Problem 2R

The conditions for a perfect competition to exist include large number of buyers and sellers, homogeneous products, no entry or exit barriers, and having complete information of the market.

Explanation of Solution

The following is the list of the conditions that must be met for perfect competition to exist:

1.	There are large number of buyers and sellers in the market.
2	Firms trade in homogeneous products. The concept of product differentiation does not exist. All firms produce identical products or services thereby resulting in no advertising costs too.
3	There are no boundaries on the entry and exit in the market which means that when the industry is earning profits, some new firms can enter the market lured by such profits without any hassles and at the same, if the industry is facing losses, the firms are permitted to easily leave the market.
4	Sellers and buyers have the perfect knowledge to make efficient decisions about which product is to be bought and sold
5	Every participant is a price taker, i.e., they don’t have power over the market price. If they try to raise prices of the products, they will end up losing customers

Economics Concept Introduction

Introduction: Perfect competition is defined as the market structure where there are huge number of buyers and sellers in the market.