PROJECT ON PERFECT COMPETITION

Presented By –

Aditi Khot

Murtuza Hasan

Sandeep Nagpal

Manish Telavane

Payal Vadgama

TYPES OF MARKET STRUCTURE Monopoly Oligopoly Dominant Firm Monopolistic Competition Perfect Competition

PERFECT COMPETITION The concept of competition is used in

two ways in economics.Competition as a process is a rivalry among

firms.Competition as the perfectly competitive

market structure.

A PERFECTLY COMPETITIVE MARKET• A perfectly

competitive market is one in which economic forces operate unimpeded. •Many firms, all making the same product. Each firm’s output level is very small relative to the total output level.

ASSUMPTIONS: There are many buyers and sellers,

each firm is a price-taker. Identical output produced by each firm –

homogeneous products that are perfect substitutes for each other.

All firms (industry participants and new entrants) have equal access to resources (e.g. technology)

No barriers to entry & exit of firms in long run – the market is open to competition from new suppliers.

No externalities in production and consumption

Hypothesis:

Each Seller is Perfect Competitor and Each Buyer is the King.

LINKING ROAD -MANY BUYERS AND MANY SELLERS

LINKING ROAD – IDENTICAL PRODUCTS AND PERFECT SUBSTITUTES

DETERMINING PROFITS GRAPHICALLY

(a) Profit case (b) Zero profit case (c) Loss caseQuantity Quantity Quantity

Price65 60 55 50 45 40 35 30 25 20 15 10

5 0

65 60 55 50 45 40 35 30 25 20 15 10

5 01 2 3 4 5 6 7 8 9 10 12 1 2 3 4 5 6 7 8 9 10 12

D

MC

A P = MR

B ATCAVC

E

Profit

C

MC

ATC

AVC

MC

ATC

AVC

Loss

65 60 55 50 45 40 35 30 25 20 15 10

5 0 1 2 3 4 5 6 7 8 910 12

P = MRP = MR

Price Price

THE SHUTDOWN DECISION

MC

P = MR

2 4 6 8 Quantity

Price

60

50

40

30

20

10

0

ATC

AVC

Loss

A$17.80

CONCLUSION

Price-takers market.

Homogeneous products that are perfect substitutes?

All firms have equal access to resources (e.g.technology)

Free entry & exit of firms

No externalities in production and consumption