What is Perfect competition?
In [[economics]], '''perfect competition''' is a type of [[market forms|market form]] in which there are many [[company|companies]] that sell the same product or service and no one has enough [[market power]] to be able to set prices on the product or service without losing business. As the conditions for perfect competition are strict, there are only a few markets that are considered to be perfectly competitive and this market form only exists to compare with the other market forms. == Characteristics == Generally, a perfectly competitive market exists when every firm in the market are [[price taker]]s and no one is able to charge a different price without losing business. Specific characteristics of perfect competition includes: * '''Large number of buyers and sellers''': There are many buyers who are willing to buy the product at a certain price and there are many sellers who are willing to sell the product at a certain price. * '''No barriers to entry and exit''': There are no [[barriers to entry]] and exit for firms and firms are able to enter or leave the market without any issues. * '''Perfect information''': All buyers are assumed to know the price of the product set by all sellers and sellers are assumed to know the production methods of their competitors. These characteristics are largely impossible to achieve in reality and there are not many markets that are perfectly competitive. For example, it is unlikely that there are absolutely no barriers to entry and exit as there are always costs involved in setting up a new firm. Also, information is always imperfect and it is not possible for buyers to know exactly the price set by all sellers, and sellers are not willing to share their production methods with their competitors. However, the study of perfect competition is important as it is used to compare with the other market forms. In the short run, a perfectly competitive firm is not [[productive efficiency|productively efficient]] as the output will not be at where the marginal cost equals to the av