4. Meaning of Perfect CompetitionMarket
“AMarket situation in whichalargenumberof
producers or sellers producing andselling
homogeneousproduct.”
5. Main features of Perfect CompetitionMarket
• Each sellers sell a small portion total
• Single sellers has no influence on
market
• Sellers are price taker
• Identical product
• Same price and
cost
• There is no government or other
control
Large no. of
buyers and
sellers
Homogeneo
us product
Free entry
and exit
6. Main features of Perfect CompetitionMarket
• 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
7. Meaning of Perfect CompetitionMarket
Nature of demand andAR, MRCurve of a firm
Output Price TR AR MR
1 1
0
2 1
0
3 1
0
4 1
0
5 1
0
6 1
0
7 1
0
8 1
0
Price
Output
Price=AR=MR
Demand andAR,MR Curveof 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
8. Meaning of Perfect CompetitionMarket
Price determination in theindustry
Price
Output
DemandCurve
Supply Curve
Excess supply
Excess Demand
9. Meaning of Perfect CompetitionMarket
Price determination in theindustry
Price
Price=AR=MR
Firm( is a PriceTaker)
Price
Industry
DemandCurve
Supply Curve
Output Output
First Condition for maximization of profit > MR= MC
Second Condition for maximization of profit > MC curve cut MR curve
from bellow
10. Meaning of Perfect CompetitionMarket
Price determination in theindustry
Price
Output
Price=AR=MR
Firm( is a PriceTaker)
Price
Output
Demand
Curve
Industry
Supply Curve
What is level of
output of a firm
?
First Condition for maximization of profit is MR= MC
Second Condition for maximization of profit is MC curve cut MR curve
from bellow
11. Meaning of Perfect CompetitionMarket
Thefirms equilibrium(Out putdetermination)
Price
Output
Price=AR=MR
Firm( is a PriceTaker)
Price
Output
Industry
DemandCurve
Supply Curve
MC
O M
MC=MR
E
E0
First Condition for maximization of profit is MR= MC
Second Condition for maximization of profit is MC curve cut MR curve
from bellow
12. Meaning of Perfect CompetitionMarket
Short run equilibrium of a firm with abnormalprofit
Price
Output
Price=AR=MR
FirmwithProfit
MC
O M
MC=MR
Profit E
AC
13. Meaning of Perfect CompetitionMarket
Short run equilibrium of a firm with No profit No Losses
Price
Output
Price=AR=MR
FirmwithProfit
MC
O M
MC=MR
E
AC
14. Meaning of Perfect CompetitionMarket
Short run equilibrium of a firm withLosses
Price
Output
Price=AR=MR
FirmwithProfit
MC
O M
Losses
E
MC=MR
AC
15. Meaning of Perfect CompetitionMarket
Long run equilibrium of a firm with NormalProfit
Price
Output
Price=AR=MR
FirmwithProfit
LMC
O M
MC=MR
E
LAC