Compare and contrast the way in which an individual firm and the industry determine there short run and long run outputs under perfect competition.

The market system determines what, how and for whom goods and services are produced. The consumer determines what to produce. An increase in consumer demand will lead to a rise in price and producers will respond to higher price by raising production- to make more profits. Competition between producers determines how to produce- if they do not want to produce as cheaply as possible they will go out of business. For whom to produce is decided by prices in factor markets. Some people have high incomes because there skills are scarce and they can afford more resources.

Perfect competition (sometimes known as pure competition) is a theoretical type of market structure. It is primarily used as a benchmark in comparison with other market structures.

The structure of a market determines the behaviour and performance of firms that sell in the market. A real life example could be that fishermen and farmers often operate in perfectly competitive markets.

Main theories
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