A model of industrial structure in which many small firms compete in the supply of a single product. All firms aim to maximize profit .
Firms can costlessly enter and exit the industry.
Also, it is assumed that the outputs traded are homogeneous. Thus, marginal revenue will equal marginal cost. Moreover, under the price-taking assumption, the effect is that marginal cost equals price. This is efficient for the allocation of resources, because it ensures that no consumer will be deterred from buying something which he values more than it cost to make. In the long run, freer entry and exit ensures new entrants will be attracted into any industry where high profits are made.