Operation of a Perfectly Competitive Market in the Short Run

The consequence of the preceding assumptions is that all exchanges in a perfectly competitive market will quickly converge to a single price. Since the good is viewed as being of identical quality and utility, regardless of the seller, and the buyers have perfect information about seller prices, if one seller is charging less than another seller, no buyer will purchase from the higher priced seller. As a result, all sellers that elect to remain in the market will quickly settle at charging the same price.

In chapters 2 and 3, we examined the demand curves seen by a firm. In the case of the perfect competition model, since sellers are price takers and their presence in the market is ...

Get Managerial Economics now with the O’Reilly learning platform.

O’Reilly members experience live online training, plus books, videos, and digital content from nearly 200 publishers.