MBA, SEM 1 MARKET: PERFECT COMPETITION

MANAGERIAL ECONOMICS
DR. SUBHENDU DUTTA

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MARKET-PERFECT
COMPETITION After attending this session, you will be able to understand:
• the concept of market, features of different types of market
• how a firm makes its output decision and why it sometimes shuts down
temporarily

• how price and output are determined in different market conditions

• why firms enter and leave a competitive market

• Is perfectly competitive market efficient
Key Concepts
▪ Perfect competition, Monopolistic Competition, Monopoly and Oligopoly

▪ Firm and industry demand curves

▪ homogenous product

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 Perfect
Demand,
The
How Competition
Market:
Efficiency
Profit Meaning
Price,
Profit-maximizing
aMaximization
competitive and
of and
Revenue
a output classification
Competitive
by
firm amakesin Perfect
decision Competition
for
Market
Competitive
its any firm
Firm
long-run, in in
the
profit-
THE CONCEPT OF any market
short run conditions
maximizing output The decision?
shutdown point
MARKET AND ITS • Many firms sell identical products to many buyers.
To evaluate a market outcome,
• A firm is a price taker
occurs atwethe
should
price see if it achieves economic
efficiency—the maximization of aggregate consumer and producer surplus.
CLASSIFICATION • Free
In the long entry
run, and
Or, • Perfect mobility
Profit
𝜋 =of𝑇𝑅
and
−which
the quantity
𝑇𝐶 average
at
exit = Total Revenue – Total Cost
resources
In variable cost is a This means prices fail to provide
• some
firms situations,
• Sellers
can enter ora exit
and buyers market
are failure
the well occurs.
informed
market. about prices
minimum.
•To As
the maximize
proper
new firms profit,
signals
enterto the firm selects
consumers
a market, the output
and
the market for which
producers,
price falls thenthe
and the
the difference
unregulated
economic
between
competitive
profit ofrevenue
market
each and
firm iscostinefficient—i.e.,
is the greatest as
decreases. shownot
does below:
maximize aggregate
consumer
• Firms exit and producer
a market in surplus.
which they There
are are two important
incurring instances
an economic loss. in which
market
• As firms failure canaoccur:
leave market, the market price rises and the economic loss
1. incurred
Externalities:
by theSometimes
remaining firmsthe actions of either consumers or producers
decreases.
resultand
• Entry in costs or benefits
exit stop when firmsthat make
do notzero
show up as part
economic of the market price.
profit.
Such costs or benefits are called externalities.
Thus,ofprofit
2. Lack is
Information: Market failure can also occur when consumers lack
maximized about the quality or nature of a product and so cannot make
information
when MR = MC purchasing decisions.
utility-maximizing

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SUMMARY

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 Microeconomics (2012), 10th edition, M. Parkin, Pearson
Microeconomics ()7th edition, Pindyck, Rubinfeld & Mehta

References

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