Description 
The narrator discusses the nature of 
perfect competition, in particular that 
(1) there have to be many producers 
in the market, (2) there have to be 
many buyers, and (3) the product 
produced is a homogeneous product. 
In this situation, Mort is a price taker, 
in that he has no influence on price. 
 

Audio Transcript 

Narrator: Marge is surprised when Mort tells her that he can't lower his prices. He has to explain the nature of his market. 

Marge: You know, Mort, I could take my business elsewhere. 

Mort: That’s your decision, Marge, but everyone charges the same price—the market price. You see, there's no secret to producing good ostrich meat anymore. There’s lots of farms selling it and lots of people buyin' it. 

Narrator: Mort has alluded to three of the basic assumptions that economists use to identify the theoretical market structure known as perfect competition. 

Narrator: Number one, there have to be many producers in the market. 

Narrator: Number two, there have to be many buyers. 

Narrator: Number three, the product produced is a homogeneous product. That is, buyers cannot distinguish one producer's product from another's. 

Narrator: Mort's ostriches are the same as those raised by any other farmer. Presumably, Marge has no preference for Mort's meat over, say, Farmer Mo's or Farmer Millie's, or any of the other thousands of ostrich farmers in the world. 

Narrator: Under these market conditions, Mort and all the other farmers are price takers because they have no influence on price. Each producer supplies such a small percentage to the market that no single firm has a real impact on price. They each sell all their output at the market price. 

Narrator: Another important assumption for the model of perfect competition is that firms can freely enter and exit the market. There are no barriers or restrictions to doing so. Mort doesn't have to raise ostriches. He could raise pigs or chickens. And other kinds of farmers are free to start raising ostriches if they wish. It doesn’t require a license or special knowledge. 

Narrator: The perfect competition model assumes that there is free and open exchange of information about the product and the market. This is sometimes referred to as perfect knowledge. 

Narrator: In the real world, information is rarely free, nor is it always accurate. Competitors attempt to differentiate their products with claims of superiority or special ingredients and processes. 

--End--           Back