Abstract
In a pure and simple static world of perfect competition, where production units purchase or rent all their inputs in competitive markets and each sells a single homogeneous product competitively, production takes place at a point of constant returns to scale where the marginal cost and average cost of the product are equal to each other and to its price. If in addition there are no neighbourhood effects or externalities operating outside the market, the result will be Pareto efficient, meaning that there is no feasible alternative arrangement that would be better for someone and no worse for anyone.
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