This module introduces the assumptions of a perfectly competitive market, in which numerous small firms compete against each other to supply a large market of consumers. The module explains why the profit maximizing condition becomes "price = marginal cost" in contrast to "marginal revenue = marginal costs" for the monopolist. The standard firm cost curves are used to illustrate three situations; when firms make positive short-term profit, negative short-term profit, and zero profit. Finally the outcome in a perfectly competitive market is compared to the monopoly outcome to demonstrate the effects of rising competition; most notably the reduction in prices and firm profit and the increase in total market supply leading to the benefit of consumers. The increase in market efficiency from greater competition is highlighted.

The Assumptions of Perfect Competition - 12 minutes

Maximizing Profit in Perfect Competition - 32 minutes

Comparing Perfect Competition with Monopoly 6 minutes