Perfect Competition And Its

Price Determination
Presented By:
Nikita Talukdar
Nivya Paul
 "Prefect competition is a market in which
there are many firms selling identical products
with no firm large enough, relative to the
entire market, to be able to influence market
price".

 “The seller is the price taker not the price

maker".
 Large number of buyers and sellers.
 The product is homogeneous.
 No barriers to Entry And Exit.
 Absence of Government Regulation.
 Perfect mobility of factors of production.
 Perfect knowledge.
 No cost of transportation.
 Profit Maximization.
Price determination under perfect competition
are analyzed in three different periods:-

 Very Short Run or Market period

 Short Run period
 Long Run period
 Total output of a firm is fixed. Each firm has a
stock of commodity to be sold.

 The stock of goods with all the firm makes

the total supply. Since the stock is fixed, the
supply curve is Perfectly Inelastic.
 Short run period in which firm can neither
change their size nor quit , nor can new firm
enter into the industry
 In short run it is possible to increase or
decrease the supply by increasing or
decreasing the variable input.
 Super normal profit is defined as extra profit
above that level of normal profit. It occurs
where AR>ATC.it also known as abnormal
profit .
 Abnormal profit means there is an incentive
for other firm to enter in the industry ( if they
can)
 In market which are perfectly competitive ,
the profit available to a single firm in the long
run is called normal profit
 Normal profit exists when TR=TC , means
total revenue equal to total cost.
 To the economist normal profit is a cost and
is included in total cost of production.
 Firms can also make losses in the short run,
depending on the price and cost conditions.
 If the market price for the product is
determined, it is given for all the firms. If it
decreases the price lower than market price,
than it will acquire losses. If it raises the price
of its product above the market price, it may
lose a part of its total profit.
TR = OPMQ
TC = OBNQ
LOSS=OBNQ-OPMQ
=PBNM
 Basically, Long run is the condition where the
firm will always earn the normal profit.
 Refers to a period in which the supply of a
product can be increased or decreased with
changing level of demand.
 Organisations can reduce production level if
there is decrease in demand.
 Hence, it is said that in long run period, the
price of a product is influenced by supply.
 The price in the long period is called normal
price.
TR= OPMQ
TC= OPMQ
LOSS = O