Traditionally, the perfect competition has been assumed in the theory of international trade. The theory of perfect competition presupposes that the market is so large that no single suppliers, by itself, can affect the market price. In other words, the number of suppliers is very large and they take or accept the market price to decide the plan of their supplies. Though the world markets are generally large enough to permit this assumption, however, we have to admit that some markets are dominated by a few large firms which can manipulate the market price by themselves. The behavior of such price making firms is considered in the theory of oligopoly.
KeywordsMarginal Cost Demand Function Domestic Market Foreign Firm Equilibrium Price
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