Perfect Competition Case Study

Chapter 6 explores the firm behaviour while operating in situations of horizontal demand, which implies a perfect competition scenario. The assumptions made clear while evaluating the perfect market assumption was that all the players in the market were privy to equal information and production resources, which is largely not the case in the real world. In my opinion, the implications of the assumptions influenced the perception of many students towards the content of the chapter. However, the lessons from the view of a percept competition environment can be extrapolated to use in firms operating in current competitive markets.
An important lesson learnt is that firms operating in perfect competition are unable to set the price and are usually …show more content…
The curve slopes down to reflect that the cost of ordinary goods is inversely related to the demand function. Simply, the price of a good or service reflects the demand in the market as the price of the good increases or decreases. The overall price of the good in the market is seen as a function of the market demand and the market supply. Once the price of the good has been set the individual firms are forced to price their goods relative to the overall market price. Lack of power to set prices leaves firms vulnerable to market forces. My understanding is that individual organizations operating in perfect competition environments cannot alter prices beyond the amounts set by the market. The price set by individual firms is horizontal since it cannot change in response to consumer demand for its products. Image 1 shows the interaction between market demand curve and the individual demand curve. The price each seller puts on the products does not affect demand, which means it is price elastic. Thus, the concepts inherent to the chapter means that firms have to set strategic prices in response to market