PERFECT

COMPETETION IN
LAUNDRY MARKET
CONTENTS
CONCEPTS OF PERFECT COMPETETION
ANALYSIS OF DATA COLLECTED FROM
LAUNDARY MARKET
CONCLUSIONS
Perfect competition

An idealized market environment in

which every market participant is too
small to affect the market price by
acting on its own.
 Assumptions:
1) Large Number of Small Firms - A perfectly competitive
industry contains a large number of small firms, each of which
is relatively small compared to the overall size of the market.
No single firm can exert market control over price or quantity.
2) Identical Products: Each firm in a perfectly competitive
market sells an identical product, what is often termed
"homogeneous goods.“

3) Perfect Knowledge: In perfect competition, buyers are

completely aware of sellers' prices, such that one firm cannot
sell its good at a higher price than other firms.

4) Free entry and exit: Perfectly competitive firms are free to

enter and exit an industry.
Each firm in a perfectly competitive market is a price taker
It sell all of the output that it wants at the going market price,
in this case $2.50
If the firm tries to charge more than the going market price,
then buyers can simply buy output from any of the large
number of perfect substitutes produced by other firms.
Demand curve is price elastic
 Mathematical proof: MR=AR=Price
TR=P.Q
 
MR= TR/Q

[If 1 unit of commodity is sold at 2.5$ then 2 unit of

commodity is sold at 5$.Hence additional revenue i.e
MR=2.5$ which is equal to price]
 
AR = TR / Q
= P.Q / Q
= Price
Determination of Price in Industry

Price is determined where demand of all the firms is equal to

supply of all the firms 
Also demand curve of industry is elastic curve which signifies
that if price increases then demand will fall and vice versa.
Short-Run Production:
Profit Maximization condition

MC = MR i.e To maximize profits, a firm should produce

where marginal cost equals marginal revenue
The P = MR = MC condition tells us how much output a
competitive firm should produce to maximize profit it i.e Q
output would maximize the profit
It does not tell us how much profit the firm makes
Determining Profit Graphically

Price MC Price MC Price MC

65 65 65
60 60 60
55 55 55
50 50 50 ATC
45 45 ATC 45
40 D A P = MR 40 40 Loss P = MR
35 35 35
30 Profit 30 P = MR 30
B ATC AVC
25 C AVC 25 AVC 25
20 E 20 20
15 15 15
10 10 10
5 5 5
0 0 0
1 2 (a)
3 4 5 6 7 8 9 1012 1(b)
2 3 4 5 6 7 8 9 1012 (c)1 2 3Quantity
4 65 7 8 910 12
Quantity Quantity
Profit case Zero profit case Loss case
The Marginal Cost Curve Is the Supply Curve
The marginal cost curve is the firm's supply curve above the
point where price exceeds average variable cost.
Supply curve for a perfectly competitive firm is positively
sloped.
The Shutdown Point

In this diagram firm revenue is covering the average variable

cost so the firm will continue producing.
If total revenue is more than average variable cost, the firm’s
best strategy is to temporarily produce at a loss
It is taking less of a loss than it would by shutting down.
The firm will shut down if it cannot cover average
variable costs.
A firm should continue to produce as long as price is greater than
average variable cost.
If price falls below that point it makes sense to shut down
temporarily and save the variable costs.
 RAW DATA COLLECTED :

Rate per pair along

with washing Rs.20
Pairs per Day 70
FIXED COST
Rent 1000
Water Bill 200
Economic Cost Rs. 250 Per day
VARIABLE COST
Electricity 1100
Coal 520
Washing powder 500
Miscellaneous
Expense 500
Worker for washing 8 per pair
No. of Days of working 30
No. of customers 50
Analysis of Laundry man’s Revenue and Income:
Demand Curve For The Laundry Man who Did Work @
Rs.20 per Pair.

 Each firm in a perfectly competitive market is a price taker and can

sell all of the output that it wants at the going market price, in this
case Rs 20. A firm is able to do this because it is a relatively small part
of the market and its output is identical to that of every other firm. As
a price taker, the firm has no ability to charge a higher price and no
reason to charge a lower one.
 

Total Revenue, Total Cost and Profit Maximizing Output:

A firm maximizes profit by selecting the quantity of

output that generates the greatest gap between the total
revenue line and the total cost.
Observing the nature of total revenue, total income and
output which he produces, it is seen that his profit is
maximized at 19 units
Profit Maximizing and Output Curve:

As observed from the graph, the maximum profit that

is, Rs. 186.86 at output level of 19 pairs.
This is the level of profit where the distance between
total revenue and total cost curve is maximum. Any
other level of production generates less profit.
 
Marginal Revenue, Marginal Cost and Output
Curve.

The condition of profit maximizing output is MR=MC

is satisfied at 19 pairs of clothes leveled output. And at
this point MC is rising as well. So any other point to
the left side of it will not satisfy the conditions.
 NOW
FOR THE LAUNDRY
MAN WHO
CHARGED Rs19 PER
PAIR.
DEMAND CURVE

Each firm in a perfectly competitive market is a price taker

and can sell all of the output that it wants at the going
market price, in this case Rs 19.
TR,TC &PROFIT MAXIMISING OUTPUT

Observing the nature of total revenue, total income and

output which he produces, it is seen that his profit is
maximized at 18.
 Profit Maximizing and Output Curve:

As observed from the graph, the maximum profit that is, Rs.170.04
at output level of 18 pairs.
This is the level of profit where the distance between total revenue
and total cost curve is maximum. Any other level of production
generates less profit.
  
Marginal Revenue, Marginal Cost and Output Curve:

The condition of profit maximizing output is MR=MC is

satisfied at 18 pairs of clothes leveled output. And at this
point MC is rising as well. So any other point to the left
side of it will not satisfy the conditions.
 CONCLUSION:
As in laundry market there are so many sellers which are
relatively small compared to the overall size of the market. So
these sellers cannot change price and hence are price takers. If
one laundry man decides to double its output or stop producing
entirely, the market is unaffected. The price does not change and
there is not discernible change in the quantity exchanged in the
market

Even all the laundrymen are providing homogeneous services and

this is a characteristic of perfect competitive market

Here all consumer of this service has perfect knowledge about

the laundry market and they would not take the service of the
laundryman who will be charging the higher price than the other
laundry man in the market
Laundry market has a perfect elastic demand curve which
shows that all the laundryman are price takers. As a price
taker, the individual laundryman has no ability to charge a
higher price and no reason to charge a lower one. Because it can
sell all of the output it wants at the going market price, it has no
reason to charge less. If it tries to charge more than the going
market price, then buyers can simply buy output from any of the
large number of perfect substitutes produced by other firms.

Also profit in laundry market is maximized at the point where

MR=MC=P and MC is rising which is an essential condition
for perfectly competitive market.

 Also there are no entry barriers in laundry market which again

show that it is a competitive market
 THANK
YOU!!!