Let’s revisit my notes on Perfect Competition so I can reference the concept in different posts. The assumptions are as follows

• Products in the industry are 100% identical
  • Same specification products … if the specifications are different, that means its two different products
  • Not patentable
• The industry is vast (true for farmers)
• Each firm is very tiny in comparison to the size of the industry (true for farmers)
• Hence,
  • If a firm shuts down or enters the industry, market price won’t go down (i.e. prices don’t go down everywhere)
  • Firms take the price set in the market by the industry
  • Firms cannot charge more than the market price
    • Double the quantity, double the price
    • Raise the ask price, get no sales
  • Firms will exit the industry if they make negative economic profit (accounting profit minus potential income from alternative business)
    • economic profit example: a Canadian computer programmer works as a barista. His economic profit is probably negative.
• No barrier to enter or exit the industry
  • Definition of barrier is highly important here.
  • All businesses have startup costs, but a barrier regarding costs, would be that the cost is unreasonably high
  • All businesses have legal duties, but a barrier regarding legal duty, would be an unreasonable legal duty (i.e. the business has to have a compliance officer).
• (All) producers and consumers are fully aware (open knowledge) of the market (prices, quality, availability)
  • This is true for farming, because you can go to multiple grocery stores and farming markets, see prices of futures, and see news for shortages/gluts