The Theory of Perfect Competition

A theory of market structure based on four assumptions:

(1)

There are many sellers and many buyers, none of which is large in relation to total sales or purchases.

(2)

Each firm produces and sells a homogeneous product.

(3)

Buyers and sellers have all relevant information with respect to prices, product quality, sources of supply, and so on.

(4)

There is easy entry into and exit from the industry.