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Perfect Competition (RF)

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Amrutha vaalli
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2 views

Perfect Competition (RF)

Uploaded by

Amrutha vaalli
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Perfect

Perfect Competition
Competition
Perfect Monopoly
Competiti
on
Market
Structures

Imperfect Oligopoly
Competiti
on
Price Discrimination
Objective of firms ??

a)Maximise Profits

b)Minimise Profits

c)Maximise Losses
Firms maximise profits
when ??
a) MC > MR

b) MC < MR

c) MC = MR
provide MC > MR at all
quantities after that
Firms in
Perfect Competition
are??

a)“Price givers”

b)“Price takers”
Price taker means ??

a)The firm sets the price

b)The industry sets the price


Industry S Firm
Price Price

P P AR
1 1

Q1 Quantity Quantity
Eg. of
Perfect Competition
Assumptions for Perfect
Competition (P 95/96)
1) Many small firms in the industry:

2) Many buyers in the industry:

3) Firms aim to maximise profits:


4) Freedom of entry into & exit from
the industry:

5) Widespread knowledge of profit


earned:

6) Products are homogeneous:


7) Perfect elasticity of the factors of
production:

8) Firms produce on the lowest point


on the Average Cost Curve.
Advantages of Perfect
Competition
• Low prices:

• No waste/efficiency:

• Guaranteed same quality from all


suppliers @ the same price:
Disadvantages
• No Choice:

• No economies of scale
• Do not benefit form lower unit
costs as production increases.
Explanation
• In the short run firms in perfect competition
earn super normal profits as AR > AC.
• Because there is full knowledge of profits
other firms will enter the market.
• This causes the supply curve to shift to
the right.
• This causes the price to fall.
• This will cause the demand/AR to move
down.
Continued……
• This eliminates (gets rid of) SNP in
the long run.
• Perfect competition is as very
efficient because;
• Firm produce at the lowest point
of average cost curve– point A.
• Therefore firm do not waste any
scarce resources.

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