How are price and output determined under pure or perfect competition?

Question

How are price and output determined under pure or perfect competition?

Answer 1

price are determined by supply and demand for commodity product.

for branded product the price determined by subjective factors such as image, where is it made, is it hand made, is it easily copied etc etc..

price of Gucci bag $2000 or up

price of China Gucci immitation with Gucci quality $200 or up

price of China Gucci with  China quality $50 or less

American branded handbag - made in China with Gucci quality $ 500

who pay what price?

  

Answer 2

In the perfect competition model, both price and output are determined by a precise analysis of consumer demand in relation to the appropriate assessment of supply capabilities; quite simply, it is determined by the intersection of the supply curve and the demand curve.  (For a more in-depth analysis, read on, otherwise you should be done with the question.)

There are a lot of strings attached to the perfectly competitive model, however.  For example, as you can probably guess from my description, the model requires perfect information: the supplier must know not only his own supply capability, but he must be able to gauge consumer demand perfectly, which is both impossible and (in the real world) impractical, since demand is constantly changing.

Another presumption of the perfect competition model is that the cost of this information is free, as are the other costs, such as search costs for the consumer, transportation costs, and costs that may be associated with changes in output, that is to say it doesn't cost the supplier anything to not have an inventory, because every output gets sold at the appropriate price, and when quantity demanded increases or decreases, it's not a problem for the supplier to change quantities instantly to match changing demand.  With all these presumptions, you have to think, "Are there many true instances of perfect competition in the world?"

Probably a bit longer than you wanted in a response, but there you go in case you wanted to think about it further.  Hope that helps.