There are four types of market structure, they are perfect competition, monopoly, oligopoly, and monopolistic competition. Here, we are going to discuss about perfect competition.

Perfect competition is where a market has large number of buyers and sellers that no single buyer or seller's decision can affect the market price. Other characteristics of perfect competition are the products are homogenious (this means one product is a good substitute for another product), there is perfect knowledge so there is competition of perfect competitive firms, there is no barrier to entry (this means it is for new firms to join the industry, perhaps because the set up fee is low or there is sufficient information about the industry).

Since there is large number of sellers and buyers (and no single buyer or seller can influence the market price), thus each firm has to charge the market price for each good...