The market of perfect competition is an ideal model and therefore is extremely rare. With large assumptions, the stock market and the market for agricultural products can be attributed to the market of perfect competition.
But, despite the apparent ideality, the market of perfect competition has both advantages and disadvantages.
The **advantages** of the[perfect competition](https://writingfor.online/post/perfect-competition-market/) are:
* The biggest advantage is the achievement of market equilibrium, when there is no shortage and surplus of goods.
* In addition, striving to maximize profits, firms approach the issue of using economic resources very carefully and scrupulously: they compare their marginal costs and marginal revenue, and find the most efficient volume of production and the optimal use of resources.
* The flexibility of a perfectly competitive market. When consumer preferences change, the firm immediately adapts to new conditions or leaves this market and moves to the segment where its efforts are more needed by society.
* The market of perfect competition is capable of self-regulation and can function without government intervention.
But in addition to all the above advantages, the market of perfect competition has several **disadvantages**:
* Small firms. Such firms usually seek to minimize costs and save on innovative developments and research.
* Small firms cannot take advantage of the economies of scale that larger firms have.
* The company has the opportunity to leave this market at any time, so there is no need to think about tomorrow.
* There are no entry and exit barriers. It leads to the fact that it is not always possible to use the necessary measures of public regulation in the form of environmental protection or product quality assurance.
* Since the goods presented in the market of perfect competition are standardized and homogeneous, the consumer cannot satisfy all the variety of his needs.
## Characteristics of the Perfect Competition Market
**Features** of the perfect competition are:
1. There are a significant number of sellers and buyers who freely enter into a sale-purchase relationship.
2. This is a market for a standardized product, that is, one that has no close substitutes. Due to standardization, there is no basis for[ non-price competition](https://writingfor.online/post/non-price-competition-in-economics-definition-types-methods-examples/) (competition based on differences in product quality, advertising, sales promotion, etc.).
3. The price of the goods is set by the free interaction of market demand and supply.
4. The absence of barriers to entry into this market or barriers to exit from it.
5. A single firm cannot influence the price level.
6. Perfect awareness of sellers and buyers about market conditions.
7. Mobility of production resources.
### Profit Maximization in a Perfectly Competitive Market
A firm that operates under perfect competition is called **competitive**. Its main goal is to maximize profit, which is the difference between total revenue and total costs for a certain period.
**Total revenue** is the amount of income received by a company from selling a certain amount of goods.
TR=P\*Q,
where P is the price,
Q – sales volume.
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by BlogThinkandWrite
1 comment
My first exposure to perfect competition and market equilibrium came from an agricultural economics course in college. We were talking about why production quotas never work when government tries to limit production of a commodity (corn) to drive up prices. What happens is that the people who benefit from production cuts (assuming production is cut and prices rise) are the people who DON’T cut production. The result is that everyone plants fencepost to fencepost and prices go down not up.
The correlary to that is how do you get to market equilibrium if everyone overproduces? That insight came from a commodities broker I saw who explained it simply. When supply is high we LOWER prices to BUY demand. When supplies are tight we RAISE prices to RATION demand