Sunday, 23 February 2020

Market Structure – Perfect Competition

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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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