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The theory of the firm under perfect competition — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsThe theory of the firm under perfect competition2 Marks
Question
Explain features of perfect knowledge about the market.
✓

Answer

  1. Perfect Knowledge means both buyers and sellers are fully Bet informed about the market.
  2. The firms have all the knowledge about the product market and the input markets. Buyers also tors have perfect knowledge about the product market.
  3. Let us first take the product market. The implication of perfect knowledge about the product market is that any attempt by any firm to charge a price higher than the prevailing uniform price will fail. The buyers will not pay because they have perfect knowledge. A uniform price prevails in the market.
  4. Regarding the knowledge about the input markets the implicit assumption is that each firm has an equal access to the technology and the inputs used in the technology.
  5. No firm has any cost advantage Cost structure of each firm is the same.
  6. Since there is uniform price and uniform cost in case of all firms, and since profit equals El revenue less cost, all the firms earn uniform profits.

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