MARKET PERFECT COMPETITION

GROUP MEMBERS PRIYANKA VIRMANI NEHA ANAND ANCKUPRIYA SWATI GUPTA TANVIKA KAUL KARTIKEY SRIVASTAVA SANKALP KHANNA SARTHAK GULATI PRAVEEN RANJAN LAL

WHAT IS MARKET?
A Market is a system by which buyer and sellers bargain for the 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 competition b) Oligopoly c) Monopoly

Perfect Market Competition

Under perfect market competition , a large number of firms compete against each other for selling their product. Therefore, the degree of competition under perfect competition is close to one, i.e.., the market is highly competitive.

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

Behavior of Revenue under perfect competition

Total Revenue(TR) is the total amount of money received 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 the product sold AR= TR/No. of units sold Marginal Revenue (MR) is the additional revenue earned by a firm by selling one more unit of the output MR= change in total revenue / change in quantity sold

Behaviour of Revenue under perfect competition

Total Revenue(TR) is the total amount of money received 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 the product sold AR= TR/No. of units sold Marginal Revenue (MR) is the additional revenue earned by a firm by selling one more unit of the output MR= change in total revenue / change in quantity sold
Anckupriy VIj

Anckupriy VIj

ASSUMPTION OF PERFECT COMPETITION

1)

Under perfect competition market structure there are large number of buyers as well as sellers for a given product or service. 2) The price of a product or service is fixed and buyers who are willing to buy at that price can buy the product or service and sellers who are willing to sell the product or service at that price can sell it.

3) The product or service which is being sold under perfect competition market structure is similar or Homogeneous and that is the reason why sellers do not have any control over the price of a product.

4) Under perfect competition there are no entry and exit barriers which make it easy for companies to enter into the markets and sell the product or service.

5) All the buyers and sellers have complete information about the product or service which is being sold in the market. In real life situations perfect competition market is seldom found as above assumptions may not hold in markets all over the world.

SHORT RUN IN PERFECT COMPETITION

Normal profit Abnormal profit Loss/exiting the market

NORMAL PROFIT

CONDITIONS FOR NORMAL PROFIT

Firm will produce at lowest point of the AC curve
Price and output will be determined at that point where MR=MC (its a profit maximization point)

ABNORMAL PROFIT

CONDITIONS FOR ABNORMAL PROFIT

Price and output will be determined at that point where MR=MC (its a profit maximization point) The firm will produce at a lowest cost in order to earn profit . As we can see at point p & c. Where firm is producing at lower cost so that it can earn abnormal profit

ABNORMAL LOSS

 The total cost incurred by the firm is BAOQ1 Thereby making a loss of BCAE. Firm will generate a revenue equivalent to COEQ1

Long-Run Competitive Equilibrium

Long-Run Competitive Equilibrium

MC

Price 60 50 40
SRATC P = MR LRATC

30
20 10 0 2 4 6 8

Quantity

LONG RUN EQUILIBRUM

In the long run, firms earn only normal profits. Condition for Equilibrium is P = LAC = SAC = MR = AR. Point of Equilibrium at the minimum points of both short run and long run AC curves, attaining full economies of scale.

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

COMPARISON BETWEEN DIFFERENT FORMS OF MARKET

BASIS OF DIFFERENCE 1.NO OF BUYERS & SELLERS 2.NATURE OF PRODUCT PERFECT COMPETITION LARGE MONOPOLISTIC COMPETITION LARGE MONOPOLY COMPETITION ONE SELLER,LARGE NO. OF BUYERS OLIGOPOLY FEW SELLERS,LARGE NO. OF BUYERS

HOMOGENEOUS PRODUCT HOMOGENEOUS HOMOGENEOUS DIFFERENTIATED OR OR DIFFERENTIATED DIFFERENTIATED UNIFORM NOT UNIFORM NOT UNIFORM INDIFFERENT

3.PRICE

4.ENTRY/EXIT OF FIRMS
5.FIRMSS DEMAND CURVE

FREE
PERFECTLY ELASTIC

FREE
ELASTIC

RESTRICTED
INELASTIC

RESTRICTED
UNDEFINED

BASIS OF DIFFERENCE
6.SLOPE OF FIRMS DEMAND CURVE

PERFECT COMPETITION
HORIZONTAL STRAIGHT LINE (AR = MR)

MONOPOLISTIC COMPETITION
SLOPED DOWNWARDS WITH HIGH ELASTICITY (AR > MR)

MONOPOLY COMPETITION
SLOPED DOWNWARDS WITH LOW ELASTICITY (AR > MR)

OLIGOPOLY

DEPENDS ON MODEL

7.SELIING COST

NOT REQUIRED

VERY SIGNIFICANT
TEA,TV SET, SHOES,FRIDGE, TOOTHPASTE MANUFACTURER

NOT REQUIRED VERY SIGNIFICANT

PUBLIC UTILTIES, TELEPHONE, ELACTRICITY ETC. ALUMINIUM, STEEL,CAR ETC.

8.NATURE OF INDUSTRY WHERE PREVALANT

FINANCIAL MARKET & SOME FARM PRODUCTS

Applications of Perfect Competition

Exacting Requirements No perfect example Only close approximations exist Still Relevant