This document provides an overview of the concept of perfect competition in economics. It defines perfect competition as a market structure with many small businesses producing identical products, where no single firm can influence the market price. Under perfect competition, there is freedom of entry and exit into the market. The document then lists the five criteria that must be met for a market to be considered perfectly competitive. It discusses how market price is determined under perfect competition through the interaction of supply and demand. Finally, it outlines some of the advantages and disadvantages of perfect competition.

1. PERFECT COMPETITION
BY DIVYA PARGAL

2. INTRODUCTION
• Perfectcompetition An industry structure in which there are
many firms, each small relative to the industry, producing
virtually identical products and in which no firm is large enough
to have any control over prices. In perfectly competitive
industries, new competitorscan freely enter and exit the market.
• In other words, perfect competition describes markets such that
no participants are large enough to have the market power to
set the price of a standard product.
• The perfect competition serves as a benchmarkagainst which
we can measure real-life and imperfectly competitive markets.
• Homogeneous undifferentiated products; are products that are
identical to, or indistinguishable from, one another.

3. INTRODUCTION
• A market structure in which the following five criteria
are met:
• 1. All firms sell identical products.
• 2. All firms are price takers.
• 3. All firms have a relatively small market share.
• 4. Buyers know the nature of the product being sold and the
prices charged by each seller.
• 5. The industry is characterized by freedom of entry and exit.
Sometimes referred to as “pure competition”.

4. PERFECT COMPETITION
Determination of Market price
• Market price is determined by the equilibrium between
demand and supply in a market period or very short run.
What will be the nature of the supply curve
in a Market period?
• Two cases are prominent;
• 1.Perishable goods
• 2.Non-perishable goods

5. PERFECT COMPETITION
Price determination of charitable
goods
Here
• MPS = market period
• supply curve
• DD = market demand
• curve

6. SHORT-RUN PRICE DETERMINATION
UNDER PERFECT COMPETITION
• The marginal cost curve
shows the output level that
maximizes profit at any
market price. Thus, the
marginal cost curve of a
perfectly competitive profit-
maximizing firm is the firm’s
short-run supply curve. This is
true except when the price is
so low that it pays a firm to
shut down.
PERFECT COMPETITION

7. ADVANTAGES AND DISADVANTAGES
OF PERFECT COMPRTITION
Advantages
Optimal allocation of resources:
• Economic efficiency
• Maximization & effectiveness of utility, and
service.
The competition encourages efficiency:
• Tight competition between buyers.
• Buyers get efficient as they embrace change in
the competitive market.
Customers Benefit:
• Low price of products.

8. ADVANTAGES AND DISADVANTAGES
OF PERFECT COMPETITION
Disadvantages
Less profit:
• Cost of participating in the competition.
• Profit vs investment.
Diversity of Products:
• Width & Depth of brands &products.
• Cost involved in developing and launching new
products or service.
Limitations of presentation:
• Product designs,
• Product Specifications.

9. IS PERFECT COMPETITION
REALISTIC?
• Assumptions the market must satisfy to be perfectly
competitive are rather restrictive.
• In the vast majority of markets, one or more of the
assumptions of perfect competition will, in a strict
sense, be violated.
• Perfect competition can approximate conditions and
yield accurate-enough predictions in a wide variety of
markets.

10. THANK YOU