Its definition consists of the following requirements

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Unformatted text preview: the market without any type of restrictive barriers (such as regulations, certifications, unions, professional associations, etc.). Firms must be able to enter the market if there are profits to be earned or leave the market if there are losses to incur. Markets must be accessible without costs or restrictions. In other words, this feature requires that free entry and exit prevails in the market without costs. 87 [3] Homogeneous Goods The product in the market is homogeneous or identical in every aspect except pricing. In other words, this feature requires that price is the only criterion to be considered in the economic decision process. [4] Perfect Knowledge Information about price, quantity, the future, etc. must be available to allow agents to make informed decisions in their economic activities. In other words, perfect knowledge must be available for agents to make sensible (or rational) economic decisions. So having described the features of perfect competition, one might wonder how realistic our assumption that all markets structures are perfectly competitive is. Does a perfectly competitive market actually really exist? The short answer is no, not really... Perfect competition is a theoretical construct to facilitate the economic analysis of complicated market activities that occur in "real life". The pure concept of perfect competition to economists is just like the concept of infinities to mathematicians or galaxies to astronomers. I certainly would never claim that perfect competition occurs in "real life" nor would I want you walking around thinking that it does! The concept, however, does assist us to think about the analysis in terms of what to expect in the most perfect idealistic situation. What you are learning is a thought process or way of thinking analytically about a problem...and that's what higher learning is essentially all about. In reality, some markets are closer to perfect competition than others. HOMEWORK 1. Suppose that Julian has a demand function for cola given by: QCOLA = 17 + __M__ 54PCOLA [a] Originally, Julian makes...
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This note was uploaded on 05/25/2010 for the course ECON 301 taught by Professor Sning during the Spring '10 term at University of Warsaw.

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