assumptions of perfect competition

The assumptions of perfect competition assume that there is a large number of competitors in the market, all of whom have perfect knowledge of prices and technologies. There is also a perfect mobility of capital, labor and resources. Furthermore, perfect competition assumes that the products being sold are all identical, prices are fixed by market forces, and no barriers to entry exist to new competitors. Finally, the strategy of one business has no effect on the other businesses in the market. These assumptions are unrealistic, but they provide a framework for understanding how markets work in terms of price and output decisions.