PRICE DETERMINATION UNDER PERFECT COMPETITION PERFECT COMPETITION Perfect
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PRICE DETERMINATION UNDER PERFECT COMPETITION
PERFECT COMPETITION Perfect Competition is that situation of the market wherein there are large number of Buyers and sellers of a homogeneous product and the price of such a product is determined by the market forces i. e , the industry. All firms sell the product at this price. In other words , there prevails only one price of a product in the market
ASSUMPTIONS n n n Many buyers/Many Sellers – Many consumers with the willingness and ability to buy the product at a certain price, Many producers with the willingness and ability to supply the product at a certain price. Homogeneous Products – The products of the different firms are EXACTLY the same, e. g. fruit. Low-Entry/Exit Barriers – It is relatively easy to enter or exit as a business in a perfectly competitive market. Perfect Information - for both consumers and producers Firms Aim to Maximise Profits - Firms aim to sell where marginal costs meet marginal revenue, where they generate the most profit.
PRICE UNDER PERFECT COMPETITION SUPPLY PRICE DEMAN OF PER D FOR GOOD- UNIT GOODX X 50 5 10 40 4 20 30 3 30 20 2 40 10 1 50 Y D P Industry surplus E S Equilibrium Price Shortage S o D Q Quantity Equilibrium price is determined at that point at which aggregate demand of commodity is equal to aggregate supply. x
Effect of Change in Supply on Price Effect of change in Demand on Price y y d 1 p 1 Price s 1 e 1 d e d 2 p d 1 e 2 p 2 Price d p 1 p p 2 d d 2 o q 2 q q 1 e 1 s 2 e e 2 s 1 p 2 s d s 2 x o q 1 Quantity D P s q q 1 Quantity S P x
Time Element Very Short Period Market Price Short Period Sub Normal Price Long Period Very Long Period Normal Price Trade Cycle
DETERMINATION OF MARKET PRICE OR VERY SHORT PERIOD EQUALIBRIUM n n MARKET PRICE: Price of commodity which prevails in a market at a particular time. There are two types of Goods in the market as: Perishable Goods Durable Goods
Perishable Goods y d 2 p 1 p p 2 d d 1 y s P R I C E e 1 e e 2 d 2 o Durable Goods d s Quantity Here supply remain fixed d e 1 p 1 d 2 p e e 2 p 2 d 1 S s d d 1 d 2 x o x q 2 q q 1 Quantity Here supply increased upto certain limit then become vertical.
Short Period y s d 1 e 1 p 1 d 2 Price p e 2 p 2 Long Period p 1 e Price S s d 1 E p d q 2 q q 1 Quantity D p 2 S d 2 o S x Supply can be increased upto its existing Production capacity. Firm is continue to produce in the short period even when it o D Q 2 N Q M Q 1 Quantity S D P x
- Price determination under perfect competition
- Super normal profit meaning
- Price and output determination under oligopoly
- Selling cost curve is seen in________market *
- Price discovery and price determination
- Ano ang kahulugan ng price freeze
- Long run equilibrium graph
- Short run equilibrium
- Short run equilibrium under perfect competition
- Perfect competition long run equilibrium
- Lump sum subsidy monopoly