Perfect Competition And Its Price Determination

Description about the perfect competition and three modes of price distribution.Also Price Determination in Market Period, Short Run is covered.

1. PRESTIGE INSTITUTE OF MANAGEMENT Perfect Competition And Its Price Determination Presented By: Nikita Talukdar Nivya Paul

2. Perfect Competition " Prefect competition is a market in which there are many firms selling identical products with no firm large enough, relative to the entire market, to be able to influence market price ". “The seller is the price taker not the price maker".

3. Salient Features of Perfect Competition Large number of buyers and sellers. The product is homogeneous. No barriers to Entry And Exit. Absence of Government Regulation. Perfect mobility of factors of production. Perfect knowledge . No cost of transportation. Profit Maximization.

4. Three Modes Of Price Determination Price determination under perfect competition are analyzed in three different periods:- Very Short Run or Market period Short Run period Long Run period

5. Price Determination in Market Period Total output of a firm is fixed. Each firm has a stock of commodity to be sold. The stock of goods with all the firm makes the total supply. Since the stock is fixed, the supply curve is Perfectly Inelastic .

6. Market Period Curve

7. Price D etermination in Short R un Period Short run period in which firm can neither change their size nor quit , nor can new firm enter into the industry In short run it is possible to increase or decrease the supply by increasing or decreasing the variable input.

8. Super Normal Profit Super normal profit is defined as extra profit above that level of normal profit. It occurs where AR>ATC.it also known as abnormal profit . Abnormal profit means there is an incentive for other firm to enter in the industry ( if they can)

9. Super Normal Profit Curve

10. Normal Profit In market which are perfectly competitive , the profit available to a single firm in the long run is called normal profit Normal profit exists when TR=TC , means total revenue equal to total cost. To the economist normal profit is a cost and is included in total cost of production.

11. Normal Profit Curve

12. Loss Firms can also make losses in the short run, depending on the price and cost conditions. If the market price for the product is determined, it is given for all the firms. If it decreases the price lower than market price, than it will acquire losses. If it raises the price of its product above the market price, it may lose a part of its total profit.

13. Loss Curve TR = OPMQ TC = OBNQ LOSS=OBNQ-OPMQ =PBNM

14. Pricing in Long Run Basically, Long run is the condition where the firm will always earn the normal profit. Refers to a period in which the supply of a product can be increased or decreased with changing level of demand. Organisations can reduce production level if there is decrease in demand.

15. Hence, it is said that in long run period, the price of a product is influenced by supply. The price in the long period is called normal price.

16. Long Run Period Curve TR= OPMQ TC= OPMQ LOSS = O

17. Thank You