Perfect competition

Abstract

The last chapter explained the basic principles of the profit maximising theory of the firm on the assumption that a firm faced a given demand curve. The demand for a firm’s output will, however, depend on:

• 1. the market demand for the good that is produced, and

• 2. the state of competition in the market and the behaviour of rival producers. This is the first of four chapters which consider how different possible states of competition can affect a firm’s pricing and output behaviour. Markets can range from the case of perfect competition, analysed in this chapter, to pure monopoly, with a number of possible intermediate cases.