ABSTRACT
Perfect competition is an idealized market structure characterized by many potential sellers for identical product that has many potential buyers. While it does not correspond exactly to any particular market, arguably the market for agricultural commodities such as a particular type of soy beans, or for certain financial assets that are traded in stock exchanges come close. It provides benchmark against which to compare various forms of imperfect competition. In particular, there are no exclusive technology or patents that confer an advantage to any firm. The best technology and business practices are commonly known. Thus any variation in costs across producers are generally small and mainly due to managerial efficiencies or differing opportunity costs of the entrepreneurs. If a firm is making supernormal profits in the short run, this attracts new entrepreneurs to enter this industry until the increased competition squeezes a typical firm’s profit to zero at which point entry ceases since a typical entrepreneur only makes normal profits.
