Price is determined by the forces of market demand and market supply. A firm sells its output at the given price. Therefore, a firm under perfect competition is a price taker, not a price maker.
Perfect competition is a form of market where there is a large number of buyers and sellers of a commodity. A homogeneous product is sold and its price is determined by the forces of supply and demand.
The elasticity of demand for the firm's demand = Infinite Because of free entry and exit, firms, in the long run, earn only normal profits (TR = TC or AR = AC). In the extra normal profits earned, new firms will join the industry. Market supply will increase. The market price will fall. Extra normal profits will be wiped out. In case of extra normal losses, some of the existing firms will leave the industry. Market supply will decrease. The market price will increase. Extra normal losses will be wiped out.
(A). Normal profits (TR = TC or AR = AC)
(B). Extra normal profits ( TR>TC or AR>AC)
(C). Extra normal losses (TR<TC or AR <AC)
In economics, a market is a system, institution, process, social relationship, or infrastructure configuration in which parties exchange ideas. Although parties can exchange goods and services through barter, most markets rely on sellers offering goods and services (including labor) to buyers in exchange for money.
A market can be described as the process by which prices for goods and services are determined. Markets facilitate trade and enable the distribution and allocation of resources in society. Marketplaces allow the valuation and pricing of any tradeable item. Markets can arise more or less spontaneously or be consciously constructed by people
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