PPT - The Theory of the Firm under Perfect Competition Commerce Notes | EduRev

Economics Class 11

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Commerce : PPT - The Theory of the Firm under Perfect Competition Commerce Notes | EduRev

 Page 1


Theory of the Firm
Perfect Competition
Page 2


Theory of the Firm
Perfect Competition
Perfect competition
Perfect competition is a theoretical 
market structure that will give the 
optimum allocation of resources. 
There are four conditions that have 
to be fulfilled for perfect competition 
to exist in an industry
Page 3


Theory of the Firm
Perfect Competition
Perfect competition
Perfect competition is a theoretical 
market structure that will give the 
optimum allocation of resources. 
There are four conditions that have 
to be fulfilled for perfect competition 
to exist in an industry
Conditions
• There must be many buyers and 
sellers and none of them can be large 
enough to have any influence over 
the market price
• There must be perfect knowledge of 
the market (this means no 
advertising is necessary) 
• There must be no barriers to entry -
firms must have complete freedom of 
entry and exit
• The goods being sold must be 
homogenous in nature 
Page 4


Theory of the Firm
Perfect Competition
Perfect competition
Perfect competition is a theoretical 
market structure that will give the 
optimum allocation of resources. 
There are four conditions that have 
to be fulfilled for perfect competition 
to exist in an industry
Conditions
• There must be many buyers and 
sellers and none of them can be large 
enough to have any influence over 
the market price
• There must be perfect knowledge of 
the market (this means no 
advertising is necessary) 
• There must be no barriers to entry -
firms must have complete freedom of 
entry and exit
• The goods being sold must be 
homogenous in nature 
Copyright © 2015 Active Education
peped.org/economicinvestigations
• If these conditions are met, then the industry is in 
perfect competition. 
Page 5


Theory of the Firm
Perfect Competition
Perfect competition
Perfect competition is a theoretical 
market structure that will give the 
optimum allocation of resources. 
There are four conditions that have 
to be fulfilled for perfect competition 
to exist in an industry
Conditions
• There must be many buyers and 
sellers and none of them can be large 
enough to have any influence over 
the market price
• There must be perfect knowledge of 
the market (this means no 
advertising is necessary) 
• There must be no barriers to entry -
firms must have complete freedom of 
entry and exit
• The goods being sold must be 
homogenous in nature 
Copyright © 2015 Active Education
peped.org/economicinvestigations
• If these conditions are met, then the industry is in 
perfect competition. 
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