Business economics
- 1. Siilas campus Presentation Business Economics (Perfect competition) Presented BY- Vinay Kumar Verma BBA/1/A/36
- 2. Index • Introduction • Assumption • Demand curves Firm and Industry • Short Run and Long Run • Example • Advantage of Perfect competition • Conclusion
- 3. Introduction a perfect market is defined by several conditions, collectively called perfect competition. • It is a theoretical model. • Perfect competition is refer to the market.
- 4. Assumption • Large no. of firm • Individual firm are ‘price takers’ • Homogenous product • Freedom of entry and exit • Perfect knowledge of market • Normal profit during long run
- 5. Demand curves Firm and Industry
- 6. Short Run and Long Run
- 7. Equilibrium under perfect competition Total cost and Total revenue concept – Profit on bases : TR>TC TR=TC • Production distance between TR and TC Should be maximum. • When the rate of changing in TR and TC is same. • TR should be more than TC or equal to it on equilibrium level.
- 8. Marginal cost of Marginal revenue MC = MR AC= AR • On the equilibrium firm’s marginal cost curve should cut marginal revenue from below
- 9. Equilibrium the short-run Some firms may earn super normal profit in the short in equilibrium condition, some firms suffer losses and some firms earn normal profit only.
- 10. Abnormal profit in Shot-run A Firm in earning super normal profit in short term when at the equilibrium point firm average revenue is more than the average cost.
- 11. Normal profit in Short-run • Short term a firm can be in a situation of no profit no loss. • AR= AC in each other then firm is in a situation of no profit no loss
- 12. Abnormal loss in Short-run An abnormal loss refers to a situation where a firm is making profits below the normal limits. In an abnormal loss situation the total revenue of a business does not cover total cost incurred for the firm.
- 13. Long-run Equilibrium • In term of long run equilibrium only earn normal profit where P=AR=MR=MC=AC • Long run equilibrium can be seen with the help of long term average revenue and marginal revenue curve. • MC cuts MR on point E, So E is firm equilibrium point.
- 14. Example
- 15. Advantage • High degree of competition helps allocate resources to most efficiency use • Price = marginal cost • Normal profit made in Long-run • Firm operate at maximum efficiency • Consumers benefit
- 16. Conclusion • Perfect competition is the best • Effective • Always at equilibrium • We are successful