from one another in terms of how many sellers there are in a specific market, how easy or difficult it is for a

new firm to enter, and the type of products that they sell. Economists refer to this as an industry's market

structure. In this chapter, we focus on perfect competition. However, in other chapters we will examine other

industry types: Monopoly and Monopolistic Competition and Oligopoly.

8.1 Perfect Competition and Why It Matters

LEARNING OBJECTIVES

By the end of this section, you will be able to:

• Explain the characteristics of a perfectly competitive market

• Discuss how perfectly competitive firms react in the short run and in the long run

Firms are in perfect competition when the following conditions occur: (1) many firms produce identical

products; (2) many buyers are available to buy the product, and many sellers are available to sell the product;

(3) sellers and buyers have all relevant information to make rational decisions about the product that they are
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