Examine a perfectly competitive firm that you have recently purchased a product from, focusing specifically on how the firm operates relative to the characteristics of the market.

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In general, it is probably not accurate to say that any of us have purchased goods or services from firms in perfect competition because perfect competition essentially does not exist in the real world.  I will give an example of a purchase from a firm that comes close to being in perfect competition. That example is when I purchase gas from a gas station.

One of the main characteristics of perfect competition is that there are many small firms selling a product.  Gas stations fit this model because there are many small gas stations in every town. They may all belong to a bigger network (Shell, Exxon, etc) but each one is owned by a different person and they are all in competition with one another.

A second characteristic is that the firms sell an identical product. If we are simply talking about gasoline, this is true of gas stations as well.  It does not matter to me what gas station I buy from.  As far as I can tell, 87 octane gas from one station is identical to 87 octane gas from another.  However, there are other factors that do differentiate the stations’ products. One station might be cleaner than another.  One might do a better job of making sure that there is cleaner and tools for cleaning my windshield. One might have cleaner bathrooms. In short, while the gasoline is identical, the other things about the stations might not be. So in this way, these stations are not in perfect competition.

A third characteristic is that buyers know all the firms’ prices. This is essentially true with gas stations.  You have to drive by the station to know, but you can clearly see every station’s prices posted.

Finally, firms must be able to enter and leave the market very easily. Here, gas stations are not completely in perfect competition.  It costs a lot of money to build a gas station so it is not that easy for someone to just enter the market because they have decided that they want to do so.

While gas stations are not truly an example of perfect competition, they come closer than any other kind of firm that most of us buy from in real life.

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