Perfect competition The perfect competition is ideal of market structure. Which characteristic of this model is significant to helps examine the business (Lahc n.d.). An important characteristic of perfectly competitive market, there are consists of a large number of seller and buyer. This model is easily for the new businesses to entry and exit from the market because of its no barriers also include it completely movable resources of production. The output is homogeneous that means it can be substituted completely. Each firm is the recipient of the market price. Furthermore, buyer and seller are perfect knowledge about the market (Riley 2012).
Competitive system is causing economic performance. Therefore, to increasing economic the Government policy of each country stimulated the business sector to competition in the system. (Layton, Robinson & Tucker 2012). The effectiveness of economic competition framework is an important element of the economy, which is drove by a powerful production and standards of living. By promoting best business that can produce better products for consumers (Australian Government 2014). This market leads to social resources are use efficiently. Consumers have many choices to buy it at a fair price and quality that a manufacturer will produces a quality to compete with other suppliers. Moreover, in this market sellers do not need to waste money on advertising.
The characteristics of demand of each manufacturer there is a straight line parallel to the horizontal axis of the output quantity, that price levels is the same as the recipient's production rates from the market, D= AR = MR(figure1-b). The demand curve in the attitude of the individual manufacturers, due to the structure of the market there are many buyers and sellers and the individual has no power to set prices in the market. The prices will determined by the demand and supply of the market cross, which is the equilibrium price and quantity of the product (figure1-a). The perfect competition in the short run the firms can manage their business to get a super normal profit but in the long run there cannot make it. In addition, this market also has the maximum possibility of the occurrence to be consumer surplus and social welfare and the market equilibrium occurs when P = MC and balance the long-term production efficiency in production when MC = ATC. (Economicsonline n.d.). An example the perfectly competitive market is agricultural products; there are many producers the same output in the market. Each producer is free to entry and exit from a competitive market. The producer also is unable to determine the price and the output is perfect substituted.