Limited Decision-Making in Perfect Competition
In This Chapter
Discovering that perfect competition has no competition
Maximizing profit in perfect competition
Knowing when to quit
Eliminating profit in the long run
Baseball player Yogi Berra once said, “If the world was perfect, it wouldn’t be.” That quote actually fits the economist’s idea of perfect competition — please forgive me — perfectly.
When economists use the term perfect competition, they don’t refer to competition at all. Indeed, perfect competition is the least competitive business environment there is. In perfect competition, you can’t set your product’s price and you have no incentive to advertise or innovate. You don’t compete with other firms. (However, you still have an incentive to minimize your production costs.) See, Yogi Berra is a lot smarter than you think — maybe he would have been an even better economist than he was a baseball player.
What perfect competition really refers ...