![]() The same crops that different farmers grow are largely interchangeable. Economists often use agricultural markets as an example. ![]() A perfectly competitive firm must be a very small player in the overall market, so that it can increase or decrease output without noticeably affecting the overall quantity supplied and price in the market.Ī perfectly competitive market is a hypothetical extreme however, producers in a number of industries do face many competitor firms selling highly similar goods, in which case they must often act as price takers. Supply and demand in the entire market solely determine the market price, not the individual farmer. When a wheat grower, as we discussed in the Bring It Home feature, wants to know the going price of wheat, they have to check on the computer or listen to the radio. If a firm in a perfectly competitive market raises the price of its product by so much as a penny, it will lose all of its sales to competitors.
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