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    Market Structure: Perfect Competition

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    Cammco Industries operates in a highly competitive market. While there are few other firms in the industry due to the high fixed costs of building plants, rival firms are very aggresive in their pricing strategies. Of the products sold in the industry, over 80% have 10 years of patent protection remaining. Does this industry meet an economist's definition of a perfectly competitive industry?

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    Solution Preview

    Hello Student,

    In order to answer this question, the first thing that you may want to do is look at what are the general characteristics of a perfectly competitive firm. Then after doing this, you should be able to make comparisons to the characteristics given for Cammco Industries and make a decision as to whether or not this industry meet an economist's definiton of a perfectly competitive industry.

    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 characterise 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 control over price or quantity. If one firm decides to double its output or stop producing entirely, the market is unaffected. The price does not change and there is no ...

    Solution Summary

    This solution first provides you with detailed information as to what a perfectly competitive market is and what its characteristics are. This is then followed by information which compares those characteristics of a perfectly competitive market to the characteristics given for Cammco Industries - so that a decision may be made as to whether or not this industry meets an economist's definiton of a perfectly competitive industry. Note this solution is adequately referenced.

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