Managerial Presentation (Group 3).ppbbtx

The economy

1. REVIEW OF MARKET STRUCTURE PERFECT COMPETITION Presented By Misbah Shakoor (140) Shaizah Majeed (133) Anum Saeed (116) Adeeba Nawza (127)

2. MARKET: The term market is derived from the latin word “ Marcatus ” which means merchandise or trade. In economics, market means a social system through which the sellers and purchasers of a commodity or a service (or a group of commodities and services) can interact with each other.

3. Definition: “Market is a area or atmosphere of potential exchange.” ------Phillip Kotler “Market is not a geographical place but as any getting together of buyers and sellers, in persons, by mail, telephone, telegraph and internet or any other means of communication. ------Prof. Mitchel

4. In common language, market means a place where goods are purchased. Market Structure: Market structure refers to how different industries are classified and differentiated on their degree and nature of competition for services and goods.

5. A market can be of different types: Market differ from one another due to differences in the number of buyers, number of sellers, nature of product, influence our price, availability of information, condition of supply etc. Factor influence market structure: Several factors influence market structure. These include: 1- Number of firms: The number of firms operating with an a market play the significant role in determining its structure. Market can range from having just a few dominant forms ( oligopally ) to many small firms (perfect competition).

6. Entry barriers: Entry barriers refer to obstacles that make it difficult to new firms to enter a particular market. High entry barrier such as high capital requirement or restriction regulation 10 to result in fever competitors and more concentrated markets. Product differentiation: The extent to which product are differentiated or similar within a market also impacts structure. Market with high differentiated product (such as luxury goods) often have fever competitiors compared to market with homogenous product (such as basic commodities).

7. Economists discuss four broad categories of market structure: 1- Perfect competition 2- Monopoly 3- Monopolistic competition 4- Oligopoly

8. PERFECT COMPETITION A market is said to be perfectly competitive if it satisfies the following features: 1-Large number of buyers and sellers: Under perfect competition, there exists a large number of sellers and the share of an individual seller is too small in the total market output. As a result single firm cannot influence the market price so that a firm under perfect competition is a price taker and not a price maker.

9. 2- Homogenous Goods: Under perfect competition all firms sell homogenous goods which are identical in quantity, shape, size, colour , packaging etc. So the product are perfect substitutes of each other. 3-Free entry and exit: Any firm can enter or leave the industry whenever it wishes. The condition of free entry and free exit ensures that all the firms under perfect competition will earn normal profit in the long run.

10. 4-No government regulation: There is no government intervention in the market. 5-Perfect mobility of factors : Resources can move freely from one fIrm to another without any restriction. The labour are not unionized and they can move between jobs and skills. 6-Absence of transport cost: Under perfect competition transport cost does not exist.

11. 7-Perfect knowledge: Individual buyer and seller have perfect knowledge about market and information is given free of cost. Each fIrm now the price prevailing in the market and would not sell commodity which is higher or lower than the market price .

12. Short-Run Equilibrium of the Firm In a perfectly competitive market, the short-run equilibrium point is where the supply and demand curves intersect, determining the equilibrium price and quantity. However, in the short run, firms may not be able to adjust their production levels fully, leading to the following characteristics . The supply curve is typically upward-sloping, indicating that as the price increases, firms are willing to supply more. 2. The demand curve is downward-sloping, indicating that as the price decreases, consumers are willing to buy more.

13. 3. The equilibrium point is where the supply and demand curves intersect, determining the equilibrium price (P*) and quantity (Q*). 4. In the short run, firms may be producing above or below their optimal capacity, leading to profits or losses. 5. The short-run equilibrium is not necessarily the same as the long-run equilibrium, as firms may adjust their production levels and entry/exit the market in response to profits/losses.

14. Some key points to note: - The short-run supply curve may be more inelastic than the long-run supply curve, as firms have limited ability to adjust production in the short run.- The short-run equilibrium may not be Pareto efficient, as firms may not be producing at their optimal level.- The short-run equilibrium is a temporary equilibrium, as firms will adjust their production levels and entry/exit the market in response to profits/losses, leading to a long-run equilibrium.

15. Long-Run Equilibrium of the Firm : In a perfectly competitive market, long-run equilibrium occurs when the market is in a state of perfect equilibrium, where; The demand and supply curves intersect, determining the equilibrium price (P*) and quantity (Q*). 2. All firms in the market are producing at their minimum average total cost (ATC), ensuring maximum efficiency. 3. The market is in a state of zero economic profit, meaning that firms are earning just enough to cover their costs and are not making any excess profits.

16. 4. There is free entry and exit of firms in the market, meaning that firms can enter or leave the market as they wish. 5. The market is in a state of perfect competition, meaning that there are many firms producing a homogeneous product, and no single firm has market power .

17. In long-run equilibrium, the following conditions are met: P = MR = MC = ATC (Price = Marginal Revenue = Marginal Cost = Average Total Cost)- Q = Q* (Quantity = Equilibrium Quantity)- π = 0 (Economic Profit = 0) This means that in the long run, firms will adjust their production levels and entry/exit the market until they reach a state of perfect equilibrium, where they are producing at their most efficient level and earning zero economic profit.