MAHARANA PRATAP GROUP OF INSTITUTION
TERM PAPERS ON- Perfect competitions, features determination
of price under perfect competition
SUBMITTED TO - SIDDHANT MISHRA SUBMITTED
BY- Shivam Kashyap
MBA1st year (M2)
Perfect competitions, features determination of price under perfect
competition ..
Intrduction _
Perfectly competitive is the name given to a market for a commodity in which a large number of
unorganized buyers and sellers compete with one another in the purchase and sale of commodity
without having any individual influence over the market price commodity.
So it is a market
structure in which there are large numbers of buyers and sellers, exchanging homogeneous product
without any interference by the government.
1.Features or Conditions for Perfect Competition.
(a) Large number of buyers and sellers: Under perfect competition numbers of buyers and sellers.
(b).Identical products of different sellers: The sellers in the perfectly competitive market are
weopposed to sell completely homogeneous products
(c) Profit maximization: Underperfectcompetition, all the firms have a common goal of
profit maximization. No other goal is beingpursued by creating.
2.Pure and Perfect Competition:
Price Determination under Perfect Competition the price determination under perfect
competition can
be explained under three situations:
2.Short period price
3.Long period price
Market period is very short period in which supply cannot be increased or decreased.
Market period
demand is affected by temporary factors. In market period supply is perfectly inelastic.
3.Normal Price and Law of Constant Return:
Under the law of constant return long period supply
urve is parallel to ‘OX’ axis or it is horizontal. This shows that per unit cost of production
will remain
the same as the volume of output id increased or decreased.
4.Normal Price and Law of Diminishing Return:
t is also known law of
increasing cost. An reasing cost industry is one in which external diseconomies are more rom the
industry.
Determination Firm under Perfect Competitions:
Under perfect competition, the economic,ndustry determines the price following the same route
of adjustment as described above with the
me help of twin market forces of demand and supply. Firms have to accept the price determined
by the
industry and offer their output at this price.
1.Excess demand means more demand than supply at a given price. excess supply
means more
supply than demand at a given price.
2.With rise/fall in demand for a commodity, for a given supply both equilibrium price and
quantity will
rise/fall.
3.With rise/fall in supply of a commodity for a given demand, both equilibrium price and
quantity .
Summary:Perfect competition is an ideal market structure where the same price is
quoted by every
seller and accepted by all the buyers.The firm in the market is price taker.There is a
perfect mobility
of factors of production and is no barrier, legal or market related, on the entry of new
firms into or exit
of existing ones from the industry .
Learning Objectives:
After completing this module, the students will be able to understand:
. The concept of perfect competition.
. Various features of perfect competition.
. Difference between pure and perfect competition.
. Price determination under perfect competition.
Price Determination in a Perfect Competition Market
When there is profit maximization, the firm is said to be in Equilibrium. The input that provides
the highest output to that particular firm, is known as the Equilibrium output. In such a state,
there are no factors to increase or reduce the output. The firm is the Price taker in a competitive
Market. They produce homogenous commodities. Therefore, influencing the pricing factors isn't
on the will of the firms. They strictly follow the Price structure, as stated by the industry. This is
how Price and output Determination under Perfect Competition is done. Now, we will explore
more on the topic of how Prices are determined under Perfect Competitions.
Conditions for the equilibrium of a firm.
To attain an equilibrium position, a firm must satisfy the following two conditions:
They must ensure that the marginal revenue is equal to the marginal cost (MR = MC).
If MR > MC, the firm has an incentive to expand its production and sell additional units.
If MR < MC, the firm must reduce the output since additional units add more cost than revenue.
The firm gets maximum profits only when MR = MC.
The MC curve must have a positive slope and cut the MR curve from below.
perfect competition
In Fig. 3 above, DD is the demand curve and SS is the supply curve. They equilibrate at point E
and set the market price as OP. Under perfect competition, firms adopt OP as the industry price
and consider the P-line as the demand curve or AR – average revenue curve (perfectly elastic.
Solved Question on Perfect Competition:
Q1. What is the shape of the demand curve faced by a firm under perfect competition?
Horizontal
Vertical
Positively sloped
Negatively sloped
Answer: Under perfect competition, a firm accepts the price set by the industry. Hence,
the fixed-price-line acts as a demand curve for the firms – which is horizontal.
Therefore, the correct answer is – Option a-Horizontal.
HeadingTopics:
Perfect competitions, features determination of price under perfect competition ..
Pure and Perfect Competition Normal Price and Law of Constant Normal Price
and Law of Diminishing Return,Determination Firm under Perfect
Competitions,Price Determination in a Perfect Competition Market,
Conditions for the equilibrium of a firm.,Solved Question on Perfect
Competition..
