Wednesday, 6 November 2019

Unit 9: Market Structure – Perfect Competition


                              Unit 9: Market Structure – Perfect Competition 

 In theory, perfect competition implies no rivalry among firms.

In a perfectly competitive market structure there is a large number of buyers and sellers of the product and the product is homogeneous.

There is free mobility of factors of production and the buyers and sellers have perfect knowledge of the market.

In the short run the best level of output of the firm is the one at which the firm maximises profits or minimises losses.

This is possible at P = MR = MC.

The point at which the firm covers its variable costs is called "the closing down point".

In long run the best level of output is one at which price P=LMC.

At equilibrium the short run marginal cost is equal to the long run marginal cost and the short run average cost is equal to the long run average cost.

Thus, given the above equilibrium condition, we have SMC = LMC = LAC = SAC P = MR     Equilibrium: Condition when the firm has no tendency either to increase or to contract its output.

Minimum price: Price at which the sellers refuse to supply the goods at all and store it with themselves.

Perfect competition: A market structure characterized by a complete absence of rivalry among the individual firms.

Profit: Difference between total revenue and total cost   Market period: A very short period in which the supply is fixed, that is no adjustment can take place in supply conditions.

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