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Conditions of a Perfectly Competitive Market

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What four basic conditions characterize a competitive market? Please help with this. Thanks!

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Solution Summary

This solution fully characterizes a perfectly competitive firm. First, perfect competition is defined, and then the four conditions are listed and explained in detail in this approximately 629 word answer with references.

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Hello Student,

In order to answer this question, the first thing that you may want to do is define what perfect competition is; after which you can look at what the general characteristics of a perfectly competitive firm are.

Note the following excerpt:

"Perfect Competition is characterized by a large number of well-informed independent buyers and sellers who exchange identical products. It represents a theoretically ideal situation that is used to evaluate other market structures." (Source: Clayton, G. 2001. Economics, Principles and Practices. Glencoe, McGraw-Hill)

There are at least five conditions that characterize a perfectly competitive market or industry. These include:

1) Large Number of Firms - A perfectly competitive market or industry contains a large number of small firms, each of which is relatively small compared to the overall size of the market. This ensures that no single firm can exert market ...

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