Price and output determination:

A perfectly competitive market is assumed to have the following characteristics:

1) There are numerous buyers and sellers in the market, such that no single agent has the power to affect the market price. Thus, both the parties are price-takers.

2) The products sold in the market are identical.

3) There is perfect information among the buyers regarding price and output.

4) Any firm can enter the industry without incurring a cost. The resources can also freely move across the sectors. In other words, there is no entry barrier.

Each firm in this model is a profit maximiser. As the firms are price takers in the market, their decision variable is executed through output. Being price takers, they face an infinitely elastic market demand curve and can sell unlimited amount of output at that price.