The "model of perfect competition" includes a list of requirements that must be met for a state of "perfect" (or "pure") competition to exist. The list expands or contracts according to various sources, but, in general, includes the following requirements:
- Competing firms offer an identical, or nearly identical, product
- The market operates according to capitalist, free market principles, meaning there is no impediment to competition and consumers enjoy equal access to competing firms' products
- There are more than two competitors
- Government involvement in the marketplace is limited or nonexistent
- Outside variables that can influence prices are nonexistent
As noted, different sources list more requirements for a state of perfect competition, and there are variations in how these requirements are articulated, but the underlying principles remain consistent. A theoretical picture of perfect competition is presumed to exist when these requirements are met.
With this in mind, we can now examine...
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