Perfect Competition Market

Welcome
 Meaning of Market
A place / region where Sellers and buyers are
interacted with goods and service by selling and
purchasing at a given price. It is considered as a Process

• Goods and service

• Buyers and sellers
• A place or region
• Given price
 Perfect Competition Market

Classification of Market

Markets Form
Perfect Competition Imperfect Competition Monopoly

Monopolistic Competition

Oligopoly

Duopoly
 Meaning of Perfect Competition Market

“A Market situation in which a large number of

producers or sellers producing and selling
homogeneous product.”
 Meaning of Perfect Competition Market

“A Market situation in which a large number of

producers or sellers producing and selling
homogeneous product.”
 Main features of Perfect Competition Market

• Each sellers sell a small portion total

Large no. of buyers • Single sellers has no influence on market
and sellers • Sellers are price taker

Homogeneous • Identical product

product • Same price and cost

Free entry and • There is no government or other control

exit
 Main features of Perfect Competition Market

Perfect knowledge • Perfect knowledge about the prevailing price.

about market

Absents of selling • Large no. of firm, so no transport or selling

cost and Advt. cost
cost • Homogeneous product, so no advt. needed

A single price of • Price is determined in the industry .

product

Example: Agricultural products

 Meaning of Perfect Competition Market

Nature of demand and AR, MR Curve of a firm

Out put Price TR AR MR

1 10 10 10 10 Demand and AR, MR Curve of a firm
2 10 20 10 10
3 10 30 10 10
Price
4 10 40 10 10
5 10 50 10 10 Price=AR=MR
6 10 60 10 10
7 10 70 10 10
8 10 80 10 10 Output
Meaning of Perfect Competition Market

Price determination in the industry

Excess supply

Supply Curve

Price

Demand Curve
Excess Demand

Output
 Meaning of Perfect Competition Market

Price determination in the industry

Industry Firm ( is a Price Taker)

Supply Curve

Price Price

Price=AR=MR

Demand Curve

Output Output

First Condition for maximization of profit > MR= MC

Second Condition for maximization of profit > MC curve cut MR curve

from bellow
 Meaning of Perfect Competition Market

Price determination in the industry

Industry Firm ( is a Price Taker)

Supply Curve
Price Price
Price=AR=MR
Demand
Curve

Output Output

What is level of
output of a firm ?

First Condition for maximization of profit is MR= MC

Second Condition for maximization of profit is MC curve cut MR curve

from bellow
 Meaning of Perfect Competition Market

The firms equilibrium(Out put determination)

First Condition for maximization of profit is MR= MC

Second Condition for maximization of profit is MC curve cut MR curve

from bellow

Industry Firm ( is a Price Taker)

Supply Curve
MC
Price Price
MC=MR

Price=AR=MR
E0 E

Demand Curve

O M
Output Output
 Meaning of Perfect Competition Market

Short run equilibrium of a firm with abnormal profit

Firm with Profit

MC
Price AC
MC=MR
Price=AR=MR
Profit E

O M
Output
 Meaning of Perfect Competition Market

Short run equilibrium of a firm with No profit No Losses

Firm with Profit

MC
Price AC
MC=MR
Price=AR=MR
E

O M
Output
Meaning of Perfect Competition Market

Short run equilibrium of a firm with Losses

Firm with Profit

AC

MC
Price

Losses Price=AR=MR
E
MC=MR

O M
Output
 Meaning of Perfect Competition Market

Long run equilibrium of a firm with Normal Profit

Firm with Profit

LMC
Price LAC
MC=MR
Price=AR=MR
E

O M
Output
Perfect Competition Market

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