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2023131141228574_19898Perfect Competition .pdf
1. PerfectCompetition
"Prefect competition is a market in which
there are many firms selling identical products
with no firm large enough, relative to the
entire market, to be able to influence market
price".
"The seller is the price taker not the price
maker".
2. Salient Features of Perfect
Competition
Large number of buyers and sellers.
The product is homogeneous.
No barriersto EntryAnd Exit.
Absence of Government Regulation.
Perfect mobility of factors of production.
Perfect knowledge.
No cost of transportation.
Profit Maximization.
4. Price Determination in Market
Period
• Total output of a firm isfixed. Each firm has a
stock of commodity to be sold.
• The stock of goods with allthe firm makes
the total supply.Since the stock isfixed, the
supply curveis Perfectly Inelastic.
6. Price Determination in Short Run
Period
Short run period in which firm can neither
change their size nor quit , nor can new firm
enter intothe industry
• In short run it is possible to increase or
decrease the supply by increasing or
decreasingthe variableinput.
7. Super Normal Profit
Super normal profit is defined as extra profit
abovethat levelof normal profit. It occurs
where AR>ATC.it also known as abnormal
profit .
Abnormal profit meansthere is an incentive
for other firmto enter inthe industry( ifthey
can)
9. Normal Profit
• In marketwhichare perfectlycompetitive,
the profitavailableto a singlefirm inthe long
run is called normal profit
Normal profitexists whenTR=TC , means
total revenueequalto total cost.
To the economist normal profit is a cost and
is includedintotal cost of production.
11. Loss
Firms can also make losses in the short run,
depending on the price and cost conditions.
• Ifthe market price for the product is
determined, it is given for all the firms. If it
decreases the price lower than market price,
than it will acquire losses. If it raises the price
of its product above the market price, it may
lose a part of its total profit.
13. Pricing in Long Run
Basically, Long run is the condition where the
firm will always earn the normal profit.
Refers to a period in which the supply of a
product can be increased or decreased with
changing levelof demand.
Organisations can reduceproductionlevelif
there is decrease in demand.
14. Hence, it is said that in long run period, the
priceof a product is influencedby supply.
The priceinthe long periodis callednormal
price.