PERFECT COMPETITION Eccoooooooooooo Final Presentation

7/31/2019 PERFECT COMPETITION Eccoooooooooooo Final Presentation

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MARKET

PERFECT COMPETITION

GROUP MEMBERS

PRIYANKA VIRMANINEHA ANANDANCKUPRIYASWATI GUPTATANVIKA KAULKARTIKEY SRIVASTAVASANKALP KHANNASARTHAK GULATIPRAVEEN RANJAN LAL


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WHAT IS MARKET?

A Market is a system by which buyer and sellers bargain forthe price of a product, settle the price and transit their business buy and sell a product.

TYPES OF MARKET STRUCTURE

1. PERFECT COMPETION

2. IMPERFECT COMPETION

a) Monopolistic competitionb) Oligopolyc) Monopoly


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Feature 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


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Behavior of Revenue under perfectcompetition

Total Revenue(TR) is the total amount of moneyreceived by the firm from the sale of its total output

TR =price per unit No. of units sold

Average Revenue (AR) Its the revenue per unit of theproduct sold

AR= TR/No. of units sold

Marginal Revenue (MR) is the additional revenueearned by a firm by selling one more unit of the output

MR= change in total revenue / change in quantity sold


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Behaviour of Revenue underperfect competition

Total Revenue(TR) is the total amount of money received by thefirm from the sale of its total output

TR =price per unit No. of units sold

Average Revenue (AR) Its the revenue per unit of the product soldAR= TR/No. of units sold

Marginal Revenue (MR) is the additional revenue earned by a firmby selling one more unit of the output

MR= change in total revenue / change in quantity sold

Anckupriy VIj


7/23Anckupriy VIj


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ASSUMPTION OF PERFECT

COMPETITION

1) Under perfect competition market structurethere are large number of buyers as well as sellersfor a given product or service.

2) The price of a product or service is fixed andbuyers who are willing to buy at that price can buythe product or service and sellers who are willing

to sell the product or service at that price can sellit.


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3) The product or service which is being sold underperfect competition market structure is similar orHomogeneous and that is the reason why sellers donot have any control over the price of a product.

4) Under perfect competition there are no entry andexit barriers which make it easy for companies toenter into the markets and sell the product orservice.


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5) All the buyers and sellers have complete

information about the product or service which isbeing sold in the market.In real life situations perfect competition market isseldom found as above assumptions may not hold in

markets all over the world.


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SHORT RUN IN PERFECT COMPETITION

Normal profit Abnormal profit

Loss/exiting the market


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CONDITIONS FOR NORMALPROFIT

Firm will produce at lowest point of the ACcurve

Price and output will be determined at thatpoint where MR=MC (its a profitmaximization point)


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ABNORMAL PROFIT


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CONDITIONS FOR ABNORMAL PROFIT

Price and output will be determined at thatpoint where MR=MC (its a profitmaximization point)

The firm will produce at a lowest cost in orderto earn profit . As we can see at point p & c.Where firm is producing at lower cost so thatit can earn abnormal profit


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ABNORMAL LOSS


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The total cost incurred by the firm is BAOQ1 Thereby making a loss of BCAE.

Firm will generate a revenue equivalent toCOEQ1


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Long-Run Competitive Equilibrium Long-Run Competitive Equilibrium

MC

P = MR

0

60

5040

30

20

10

Price

2 4 6 8 Quantity

SRATC LRATC


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LONG RUN EQUILIBRUM In the long run, firms earn only normal profits.

Condition for Equilibrium isP = LAC = SAC = MR = AR.

Point of Equilibrium at the minimum points of both short run and long run AC curves, attainingfull economies of scale.


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IMPORTANCE OF PERFECT COMPETITION

HOMOGENEOUS PRODUCTS FREE ENTRY AND FREE EXIT OF FIRMS

PERFECT KNOWLEDGE A LARGE NUMBER OF SELLERS AND BUYERS PERFECT MOBILITY OF FACTORS OF

PRODUCTION


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COMPARISON BETWEEN DIFFERENT

FORMS OF MARKET BASIS OFDIFFERENCE

PERFECTCOMPETITION

MONOPOLISTICCOMPETITION

MONOPOLYCOMPETITION

OLIGOPOLY

1.NO OFBUYERS &SELLERS

LARGE LARGE ONESELLER,LARGENO. OF BUYERS

FEWSELLERS,LARGENO. OF BUYERS

2.NATURE OFPRODUCT

HOMOGENEOUS PRODUCTDIFFERENTIATED

HOMOGENEOUSORDIFFERENTIATED

HOMOGENEOUSORDIFFERENTIATED

3.PRICE UNIFORM NOT UNIFORM NOT UNIFORM INDIFFERENT

4.ENTRY/EXITOF FIRMS

FREE FREE RESTRICTED RESTRICTED

5.FIRMSS

DEMAND

CURVE

PERFECTLYELASTIC

ELASTIC INELASTIC UNDEFINED


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BASIS OFDIFFERENCE

PERFECTCOMPETITION

MONOPOLISTICCOMPETITION

MONOPOLYCOMPETITION

OLIGOPOLY

6.SLOPE OFFIRMS

DEMANDCURVE

HORIZONTALSTRAIGHT LINE(AR = MR)

SLOPEDDOWNWARDSWITH HIGHELASTICITY(AR > MR)

SLOPEDDOWNWARDSWITH LOWELASTICITY (AR> MR)

DEPENDS ONMODEL

7.SELIING COST NOT REQUIRED VERYSIGNIFICANT

NOT REQUIRED VERYSIGNIFICANT

8.NATURE OFINDUSTRYWHEREPREVALANT

FINANCIALMARKET &SOME FARMPRODUCTS

TEA,TV SET,SHOES,FRIDGE,TOOTHPASTEMANUFACTURER

PUBLICUTILTIES,TELEPHONE,ELACTRICITYETC.

ALUMINIUM,STEEL,CAR ETC.


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Applications of Perfect Competition

Exacting Requirements No perfect example Only close approximations exist Still Relevant

PERFECT COMPETITION Eccoooooooooooo Final Presentation

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