Perfect Market Competition, Features, Behaviour & Implications of Revenue under perfect competition, Difference between Perfect competition , Monopolistic competition and Monopoly

1. Perfect Market Competition
 Under perfect market competition , a large number
of firms compete against each other for selling
their product. Therefore, the degree of competition
under perfect competition is close to one, i.e.., the
market is highly competitive.

2. Features of perfect market competition
 A large number of sellers and buyers
 Homogeneous product
 Perfect mobility of factors of production
 Free entry and exit of firms
 Perfect knowledge
 Absence of collusion or artificial restraints
 No government intervention

3. Behaviour of Revenue under perfect competition
 Total Revenue(TR) is the total amount of money
received by the firm from the sale of its total output
 TR = Price per unit x No. of units sold
 Average Revenue (AR) It’s the revenue per unit of
the product sold
 AR= TR/No. of units sold
 Marginal Revenue (MR) is the additional revenue
earned by a firm by selling one more unit of the output
 MR= change in total revenue / change in
quantity sold

4. Behaviour of revenue under perfect competition
Price (P) Output (Q) Total Revenue
(TR)
Average
Revenue (AR)
Marginal
Revenue (MR)
10 0 10×0 = 0 0/0 = ------ -------------
10 1 10×1 =10 10/1 = 10 10/1 = 10
10 2 10×2 = 20 20/2 = 10 10/1 = 10
10 3 10×3 =30 30 /3 = 10 10/1 = 10
10 4 10×4 =40 40 /4 =10 10/1 = 10
10 5 10×5 = 50 50 /5 = 10 10/1 = 10
10 6 10×6 = 60 60 /6 =10 10/1 = 10

5. Behaviour of TR & Q Behaviour of P and Q
 Price is equal to AR (universally
applicable)
 Marginal revenue is equal to price but
for perfect competition only.
Implications of revenue under perfect competition
TR
Q (Output)
P/AR/MR
Q (Output)
AR=MR

6. Difference between Perfect competition , Monopolistic
competition and Monopoly
Sr.
#
Reference Perfect
competition
Monopolistic
competition
Monopoly
1. No. of sellers and
buyers
Large Large One seller, but
large no. of
buyers
2. Product Homogeneous Product
differentiation
Homogeneous
or
Differentiated
3. Price Uniform Not uniform
because of
product
differentiation
Not uniform
because of price
discrimination
4. Entry of firms Free entry Not absolute
freedom
Not possible

7. Sr.
#
Reference Perfect
competition
Monopolistic
competition
Monopoly
5. Knowledge of
market
conditions
Perfect
knowledge
Imperfect
knowledge
Imperfect
knowledge
6. Mobility Perfect mobility Imperfect
mobility
Imperfect
mobility
7. Firm’s demand
curve
Perfectly elastic Relatively more
elastic
Relatively less
elastic
8. Slope of firm’s
demand curve
Horizontal
straight line
(AR=MR)
Slopes
downward with
high elasticity
(AR>MR)
Slopes
downward with
low elasticity
(AR>MR)

8. Sr. # Reference Perfect
competition
Monopolistic
competition
Monopoly
9. Selling costs Not required Very significant Not required
10. Degree of
price control
No control over
price
Partial control
over price
Full control
over price
11. Level of
profit in the
long run
AR = AC
→ Normal
profits
AR = AC
→ Normal
profits
AR > AC
→ Extra-
normal profit