Market structure: perfect competition

A homogenous product 4
Sufficient knowledge 5
Free entry 5
Other Market Forms 6
The Competitive firm 6
The Four Characteristics of P-Competitive Markets and the Elasticity of Firm Demand 7
Firm demand 7
Firm Supply and Demand 8
Figure 1 8
Profits and Entry 9
Figure 2 9
P-Competitive Equilibrium as an Ideal 10
Figure 3 10
Points About Long Run Equilibrium 11
Long Run Supply 1 11
Figure 4 12
Long Run Supply 2 13
Long Run Supply 3 14
Figure 5 15
Summary 16
Literature 17
Perfect competition
What many economists call "Perfect Competition" is an idealized structure of an industry in which price competition is dominant - in fact the only form of competition possible. The terminology "Perfect Competition" is quite common but not quite universal. The term "Pure Competition" is also sometimes used. I will use the term "P-Competition," where the P can stand for perfect, pure, or price competition -- whichever you like.
A P-Competitive structure is defined by four characteristics. For an industry to have a P-competitive structure, it must have all four of these characteristics:
• Many buyers and sellers
• A homogenous product
• Sufficient knowledge
• Free entry
Many buyers and sellers
The idea is that the sellers and buyers are small relative to the size of the market, so that no one of them can "fix the price." If there are "many small sellers," it makes it much harder for any seller or any group of sellers to "rig the price." Similarly, if there are "many small buyers," there is little opportunity for buyers to "rig the price" in their own favor.
Each seller reasons as follows: "If I try to charge a price above the market price, my customers will know that they can get a better price from my competitors. My own share of the market is so small that all of my customers will be able to buy what they want from the competition -- and...

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