Perfect Competition

1. Define what is perfect competition? Define what is perfect competition based on Hayek’s idea

2. read ‘https://mises.org/library/meaning-competition’. On that website, Hayek said, “I shall attempt to show that what the theory of perfect competition discusses has little claim to be called ‘competition’ at all, and that its conclusions are of little use as guides to policy.” Discuss Hayek’s ideas.

3. Pros and cons about perfect competition

4. Criticism about Hayek’s idea of perfect competition

5. The important thing in this essay is, you have to answer: is perfect competition good for policy?

6. in conclusion: Is the perfect competition works? Explain the reasons.

There are various market structures in the business environment. One of the primary market structures is perfect competition. A number of conditions must be met so as to conclude that it the market structure is perfect competition. These criteria include the presence of multiple firms in the market selling akin or indistinguishable goods, all the firms in the market should also be the price takers, and they should not have the capacity to control the market price of their goods. Additionally, all the players in the market should have a relatively small share of the market. There should be no enterprise that has a larger stake when compared to the others in the market. In the same market structure, buyers have all the information regarding the products that are getting sold and the prices that each firm is selling their products. Finally, the industry should have freedom of entry and exit. There should not exist barriers to the entry or exit in the market (Thampapillai 2010).  Perfect competitive market structure is also known as pure competition. Perfect competition may also be explained as being the opposite of the monopoly. In the market, the prices of merchandise and services are determined by the forces of demand and supply. Since the products and services that different firms sell in the market are perfect substitutes, consumers have the ability to buy from the other competitor if a seller increases their prices. According to Honja (2015), companies operating in the market structure earn just enough profits to stay in business. Unlike in the monopoly, where the players make supernormal profits, in the perfect competition, companies are forced to contend with stiff competition. It is the competitions that result in the reduction in the profit margin. The primary rationale for the decline in the profit margin is also as a consequence of the absence of bottlenecks that would control the entry of other players…

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