Perfect Competitive Market

Welcome

Perfect Competition Market

Meaning of Market

A place / region where Sellers and buyers are interacted with goods and service by selling and purchasing at a given price. It is considered as a Process

• Goods and service • Buyers and sellers • A place or region • Given price


Classification of Market

Markets Form Perfect

Competition Imperfect

Competition Monopolistic Competition

Oligopoly

Duopoly

Monopoly

Meaning of Perfect Competition Market

“A Market situation in which a large number of producers or sellers producing and selling homogeneous product.”

Main features of Perfect Competition Market

• Each sellers sell a small portion total• Single sellers has no influence on market• Sellers are price taker

Large no. of buyers and sellers

• Identical product • Same price and cost

Homogeneous product

• There is no government or other controlFree entry and exit

Main features of Perfect Competition Market

• Perfect knowledge about the prevailing price.Perfect knowledge about market

• Large no. of firm, so no transport or selling cost

• Homogeneous product, so no advt. needed

Absents of selling cost and Advt.

cost

• Price is determined in the industry .A single price of product

Example: Agricultural products


Nature of demand and AR, MR Curve of a firm

Out put Price TR AR MR

1 10

2 10

3 10

4 10

5 10

6 10

7 10

8 10

Price

Output

Price=AR=MR

Demand and AR, MR Curve of a firm

Out put Price TR AR MR

1 10 10 10 10

2 10 20 10 10

3 10 30 10 10

4 10 40 10 10

5 10 50 10 10

6 10 60 10 10

7 10 70 10 10

8 10 80 10 10


Price determination in the industry

Price

Output

Demand Curve

Supply Curve

Excess supply

Excess Demand



Price

Output

Price=AR=MR

Firm ( is a Price Taker)

Price

Output

Industry

Demand Curve

Supply Curve

First Condition for maximization of profit > MR= MC

Second Condition for maximization of profit > MC curve cut MR curve from bellow



Price

Output

Price=AR=MR


Price

Output

Industry

Demand Curve

Supply Curve

First Condition for maximization of profit is MR= MC

Second Condition for maximization of profit is MC curve cut MR curve from bellow

What is level of output of a firm ?


The firms equilibrium(Out put determination)

Price

Output

Price=AR=MR


Price

Output

Industry

Demand Curve

Supply CurveMC

O M

MC=MR

EE0

First Condition for maximization of profit is MR= MC

Second Condition for maximization of profit is MC curve cut MR curve from bellow


Short run equilibrium of a firm with abnormal profit

Profit

Price

Output

Price=AR=MR

Firm with Profit

MC

O M

MC=MR

E

AC


Short run equilibrium of a firm with No profit No Losses

Price

Output

Price=AR=MR

Firm with Profit

MC

O M

MC=MR

E

AC


Short run equilibrium of a firm with Losses

Losses

Price

Output

Price=AR=MR

Firm with Profit

MC

O M

MC=MR E

AC


Long run equilibrium of a firm with Normal Profit

Price

Output

Price=AR=MR

Firm with Profit

LMC

O M

MC=MR

E

LAC

Thanks


Perfect Competitive Market

Education

Transcript of Perfect Competitive Market