Summary of Pure Competition

             There are four major types of markets. They are: Pure Competition: Large number of buyers and sellers trading a standardized product (corn, wheat); Pure Monopoly: One seller, firm is the industry; Monopolistic Competition: Large number of buyers, large number of sellers each selling a similar but slightly differentiated product (cigarettes); Oligopoly: Very few sellers that acknowledge that decision of one firm affects the others and takes this fact into account when making production or pricing decisions.
             In pure competition there are a large number of buyers and sellers issuing a standardized product. There are "price takers." Meaning no one firm can affect the market price. Individual competitor is at the mercy of the market also. Besides "price takers," there is free entry and exit into the market.
             The relevance of studying pure competition is that some industries do behave like perfectly competitive firms. Wheat and rice are examples. Studying pure competition also allows us to apply revenue and cost ideas in the simplest possible context. It also provides a standard against which other more realistic markets can be compared.
             Demand curves tell us by how much will quantity demanded change if price changes it is a "what if" statement. The demand curve in pure competition as faced by the individual firm is perfectly elastic. If the individual firm raises prices no one will buy from her. If she lowers prices everyone will buy from her but since buyers are willing to pay a higher price and buy the same amount from her she is basically reducing prices for no gain.... she will not do this. Demand curves for the entire market are not perfectly elastic. As far as the entire industry is concerned if all the firms raised prices then buyers would demand less. An entire industry (all firms taken together) could affect prices by changing the industries output. But an individual firm is too small to be ...

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Summary of Pure Competition. (1969, December 31). In MegaEssays.com. Retrieved 05:47, March 28, 2024, from https://www.megaessays.com/viewpaper/39569.html