Even though perfect competition is hard to come by, it’s a good starting point to understand market structures. It’s been used to analyse markets for centuries. From Adam Smith and his invisible hand, to economists such as Edward Chamberlin and Joan Robinson, who analysed different market structures, perfect competition has been used to compare different competitive situations, and to understand how marketplaces work. A deep understanding of how competitive markets work and are formed is the cornerstone to understand why it’s so hard to reach them.
In this first Learning Path on perfect competition, we’ll start by analysing firms’ cost structure, before analysing their interaction in the market. We’ll learn about:
Perfect competition, a basic definition.
Period analysis, in order to understand how time affects cost functions;
Short run cost analysis, how fixed factors determine cost structures;
Long run cost analysis, which considers variable factors.
The industry and the market:
Supply and demand, the basics of how markets work;
Short run supply curve, or how firms react to changes in market supply or demand;
Long run supply curve, which considers also potential entry of new firms.