Perfect competition: A summary
Under perfect competition producers are making effective use of our scarce resources and producing at the lowest cost possible to society. An inefficient producer cannot hide its inefficiency by increasing the price of the product since it is a price taker. If the producer fails to be effective it will be making a loss since its cost of production will be higher than that of its competitors. It will therefore eventually be forced to leave the market. Consumers are getting the right product at the lowest price possible. Competition between producers forces them to produce the right product at the lowest possible cost. This is the point where the average total cost is at its minimum and where producers only make a normal profit.