Maximising Profets in Market Structure

Perfect competition describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product. Because the conditions for perfect competition are strict, there are few if any perfectly competitive markets. Still, buyers and sellers in some auction-type markets (say for commodities or some financial assets) may approximate the concept. Perfect competition serves as a benchmark against which to measure real-life and imperfectly competitive markets.
Generally, a perfectly competitive market exists when every participant is a "price taker", and no participant influences the price of the product it buys or sells. Specific characteristics may include:
  * Infinite buyers and sellers – Infinite consumers with the willingness and ability to buy the product at a certain price, and infinite producers with the willingness and ability to supply the product at a certain price.
  * Zero entry and exit barriers – It is relatively easy for a business to enter or exit in a perfectly competitive market.
  * Perfect factor mobility - In the long run factors of production are perfectly mobile allowing free long term adjustments to changing market conditions.
  * Perfect information - Prices and quality of products are assumed to be known to all consumers and producers.
  * Zero transaction costs - Buyers and sellers incur no costs in making an exchange (perfect mobility).
  * Profit maximization - Firms aim to sell where marginal costs meet marginal revenue, where they generate the most profit.
  * Homogeneous products – The characteristics of any given market good or service do not vary across suppliers.
  * Constant returns to scale - Constant returns to scale ensure that there are sufficient firms in the industry.
  * In the short term, perfectly-competitive markets are not productively efficient as output will not occur where marginal cost is equal to average cost, but allocatively efficient, as output... [continues]

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