Disadvantages of Perfect Competition:

(i) Firms make little or no profits: The perfectly competitive firm is generally small and makes little profit in the short-run. And in the long-run the firm earns only normal profits.

(ii) Inventions and Innovations are not encouraged: The absence of barriers to entry promotes technological theft which in turn, discourages inventions and innovations. Therefore, there is no guarantee that resources are most efficiently utilized.

(iii) Social costs are disregarded: The firm equates its private costs to its marginal costs in determining its optimum output. This means that the social costs resulting from negative externalities, especially environmental pollution are not considered in determining the actual benefit of an output to the society.

(iv) The problem of income inequality is worsened: In the long-run, some entrepreneurs who have access to bigger financial capital will adopt cost- saving technology, lower price and drive the smaller firms out of business.