Presentation on Perfect Competition:

Submitted by: Preetika Chandel And Rohit Thakur

contents
Introduction Objectives conclusion

Introduction
The determination of output and the price of a commodity in a market depend upon the number of buyers, sellers and characteristics of the product, which are also the determinants of market structure. Types of market Perfect competitive market Monopoly Monopolistic competition

Objective
Characteristics of a Perfectly Competitive Market Supply and Demand in Perfect Competition Equilibrium of the Firm and Industry in the Perfect Competitive Market

Characteristics of a Perfectly Competitive Market

A perfectly competitive market must meet the following characteristics:
Both buyers and sellers are price takers. The firms products are identical. There is complete information. There are no barriers to entry. Firms are profit maximizers. The number of firms is large.

Effect of change in Demand on the price

Note Demand Curve shifts right Increases price Increases quantity demanded

Changes in Supply or Demand

$ or Price S P1 P D1 D Q Q1 Quantity

Effect of the changes of the supply on the price

Note the supply curve shifts to the right. This lowers price and increases quantity supplied.

$ or Price S S1 P P1 D Q Q1 Quantity

Equilibrium of the firm and industry in the perfect competitive market

In the perfect competitive market the equilibrium of the firm and industry are shown in two time periods: Short-run equilibrium Short Long-run equilibrium Long-

 The short run is a timeframe in which at least one of the resources used in production cannot be changed. In the long run, all quantities of resources can run, be changed.

Short run equilibrium of the competitive firm:

Firms equilibrium can be explained in two ways: On the basis of total revenue and total cost On the basis of marginal revenue and marginal cost

Firms equilibrium on the basis of total revenue and total cost:

On the basis of total revenue and total cost a firm is in equilibrium when the difference between total revenue and total cost is maximum. T=TR-TC T=TR Where, T=total profit TR=total revenue TC=total cost.

Firms equilibrium on the basis of marginal revenue and marginal cost method:
Marginal cost: the change in total cost due to addition of cost by producing one more unit is known as marginal cost Marginal revenue: the change in total cost due to addition of revenue by selling one more unit by a firm is known as the marginal revenue

LongLong-Run Competitive Equilibrium

At long run equilibrium, economic profits are zero

Profits create incentives for new firms to enter, market supply will increase, and the price will fall until zero profits are made
The existence of losses will cause firms to leave the industry, market supply will decrease, and the price will increase until losses are zero
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Conditions of long-run equilibrium longof the firm

A firm will be in equilibrium in the long run when firms long run marginal cost and long-run longmarginal revenue will be equal to each other Long-run marginal cost curve should cut the Longlonglong-run marginal revenue curve from belom

LongLong-Run Equilibrium under Perfect Competition Many optimal-size firms, each producing at the optimalminimum long run average cost and charging the market price where: P = MR= MC = SATC = LATC Allocative efficiency: MC = P Productive efficiency: MC= SATC = LATC Zero economic profit (normal profit) : P = ATC

Conclusion:
With the increase in Supply, price will be driven down. With the lower price, profits will be driven out. Market equilibrium efficiency

Thank You