Profit maximization

Key Questions

  • Answer:

    A perfectly competitive market is characterized by consisting of many buyers and sellers. No seller has influence over the market price of a good, and every seller would sell the same good.


    In a perfectly competitive market, every producer manufactures the same good. Every seller would have the same product, such as a white collared shirt. Furthermore, they would sell commodities, which is a standardized product, such as a market share of a company or a set amount of a product like a pound of rice. The market would contain a numerous amount of producers and consumers, in a manner that no single seller or buyer would influence the market price.

    The buyers can consume as much as they wanted, and the sellers can produce as much as they wanted. An example of a perfectly competitive market would be the agricultural industry. As of right now, in the United States, there are 65,000 farmers that raise pigs to be slaughtered for meat. There are millions of consumers that are willing to buy from any seller. This shows that even if a couple of buyers stop buying or producers stop selling, it would not influence the overall market price of pork. It is stated in Mr McEachern's’ book of Economics, that, “A perfectly competitive firm is so small relative to the market that the firm’s supply decision does not affect the market price.”This shows how an individual seller cannot monopolize the market, which is an essential topic, as a monopoly could produce a deadweight loss of a product (due to the lack of equilibrium on the sales of the good).