Unformatted text preview: CI-I#ll FIRMS IN PERFECTLY COMPETITIVE MARKETS Firms in a perfectly competitive industry are unable to control the prices of the products they sell
and are unable to earn an economic proﬁt in the long run. There are two main reasons for this
result: 0 Firms in these industries sell identical products. I It is easy for new ﬁrms to enter these industries. Perfectly competitive market: The three conditions that make a market perfectly competitive
are: 1. Many buyers and sellers.
2. All ﬁrms selling identical products, and
3. No barriers to new ﬁrms entering the market.
Price taker: A buyer or seller that is unable to affect the market price. A perfectly competitive firm faces a horizontal demand curve: A ﬁrm in a perfectly
competitive market is selling exactly the same product as many other ﬁrms. Therefore, it can sell
as much as it wants at the current market price, but it cannot sell anything at all if it raises the
price by even one cent. As a result, the demand curve for a perfectly competitive ﬁnn’s output is
a horizontal line. F'gge 11.1 ...
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- Spring '11