The document discusses the concept of perfect competition in three main points: 1. Perfect competition describes a market structure where competition is at its highest level, with many small firms, homogeneous products, free entry and exit, and perfect information. 2. Under perfect competition, firms aim to maximize profits by producing at the quantity where marginal revenue equals marginal cost. 3. In the long run, if profits are above normal, more firms will enter the market, increasing supply and driving prices and profits back down to normal.

1. Presented by
ABHISHEK KUMAR
ROLL NO:- P15FC060
PGDM - IV

2. Perfect competition describes a
market structure where competition is
at its greatest possible level
Types:-
Short run – new firm
Long run

3.  Large number of buyers and sellers
 Products are perfect substitutes of each other; homogeneous
products
 Free entry and exit from the market
 Perfect knowledge of the market to both buyers and sellers
 No govt. intervention
 Transport cost are negligible hence don’t affect pricing.

4.  The goal of a competitive firm is to maximize
profit.
 This means that the firm will want to produce
the quantity that maximizes the difference
between total revenue and total cost.

5. 0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
1 2 3 4 5 6 7 8 9
SAMSUNG
NOKIA

6.  Many small dairy firms
in US were closed due
to the high productivity
cost.
 But only large firms
survived in long run and
now are making huge
profits
 Example – Fair oaks

7.  All factors are variable in the long run
 Hence all costs are variable
 Firm can change the plant and adjust the
capacity according to the requirements of
production
 If profits are supernormal, more firms enter
the market and vice versa.
 Entry and exit of firms is possible.

8. .
O O
(a) Industry
Rs
Q (millions)
S1
D
(b) Firm
LRAC
QL
Se
Q (thousands)
New firms enter
Supernormal profits
Profits return
to normal
PL
P1
ARL DL
AR1 D1