Perfect competition

Definition:
“situation in which there exists ahomogeneous product, freedom of entry, and a large n
umber ofbuyers and sellers none of whom individually can affect price.”

Assumptions

Generally, a perfectly competitive market exists when every participant is a "price taker", and no participant
influences the price of the product it buys or sells. Specific characteristics may include:

 Infinite buyers and sellers – Infinite consumers with the willingness and ability to buy the product at
a certain price, and infinite producers with the willingness and ability to supply the product at a
certain price.
 Zero entry and exit barriers – It is relatively easy for a business to enter or exit in a perfectly
competitive market.
 Perfect factor mobility - In the long run factors of production are perfectly mobile allowing free long
term adjustments to changing market conditions.
 Perfect information - Prices and quality of products are assumed to be known to all consumers and
producers.[1]
 Homogeneous products – The characteristics of any given market good or service do not vary across
suppliers.

Revenue curves

A firm earns revenue by selling its products.The revenue earned by it is divided into 3 parts-total revenue and
marginal revenue and average revenue

Total revenue :
The total earned by a firm by selling its product is called total revenue.
TR=P*Q
Where TR=total revenue,P=price and Q=quality

Average revenue :
The average revenue is the price per unit of a commodity.The average revenue is
obtained by dividing total revenue by the total quality sold.
AR=TR/Q
Where AR=average revenue, TR=total revenue and Q=quality

Marginal revenue:
"Marginal revenue is the change in total revenue associated with the change in one
unit of output."
MR= ∆TR/∆Q
Cost curves

Marginal cost:
  is the change in total cost that arises when the quantity produced changes by one unit.
MC = ∆TC/∆Q
Average cost:
which is the total cost divided by the number of units produced.
AC= TC/Q

Total cost:
 
All the fixed costs and variable cost that use to production of products is called total
cost.
TC = Fixed cost + variable cost
Quantity
Average variable cost :
All the variable cost divided by the quantity produced.
AVC = variable cost
Quantity

Equilibrium point :
The price is equal to average revenue and average revenue is equal to marginal
revenue. Price =AR = MR and demand curve is a straight parallel to the base line. It
means demand curve is perfectly elastic or fairly elastic
where MR=MC
and Ac and Avc is below from equilibrium point
Short run cost curves and long run cost curves :-

“Short run”
Abnormal profit Normal profit

Loss Shut down point

Close down point

Long run

or

Criticism:-
Assumptions are not meant to reflect real world markets where most assumptions are
not satisfied.

Pure competition is largely devoid of what most people would call real competitive
behaviour by businesses

The model provides a theoretical benchmark against which we compare and contrast
imperfectly competitive markets

It’s might be possible in The case for free international trade

Some consumers have monopsony power against suppliers because they purchase a
significant percentage of total demand

Most markets have heterogeneous products due to product differentiation

Consumers nearly always have imperfect information and their preferences and choices
can be influenced by the effect of persuasive marketing and advertising

Finally there may be imperfect competition in related markets such as the market for
essential raw materials, labour and capital goods.

http://tutor2u.net/economics/presentations/perfectcompetition.pdf