Perfect competition
Perfect competition is a market with many sellers of an identical product, free entry and exit, and full information, so no one firm can set the price. Every firm is a price taker.
It's a benchmark more than a real market; agricultural commodities and some financial markets come closest. In the long run firms earn zero economic profit.
Related terms
- Monopoly: A monopoly is a market with a single seller and no close substitutes, which lets it set a higher price and sell less than a competitive market would, creating deadweight loss.
- Oligopoly: An oligopoly is a market dominated by a few large firms, each of which must consider how the others will react.
- Marginal cost: Marginal cost is the cost of producing one more unit.
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