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Wednesday, July 24, 2013

PPT On Theory Of Firm Perfect Competition

Presentation On Theory Of Firm Perfect Competition

Theory Of Firm Perfect Competition Presentation Transcript: 
1.Theory of firm

2.A Perfectly Competitive Market
A perfect competition is market structure where there are large number of buyers and sellers who are willing to buy or sell a product or service at a given price.
A Mobile SIM card is an example of perfect competition where there are many companies which are there to sell these cards at a given price.

Under perfect competition market structure there are large number of buyers as well as sellers for a given product or service.
The price of a product or service is fixed and buyers who are willing to buy at that price can buy the product or service and sellers who are willing to sell the product or service at that price can sell it.
The product or service which is being sold under perfect competition market structure is similar or Homogeneous and that is the reason why sellers do not have any control over the price of a product.
Under perfect competition there are no entry and exit barriers which make it easy for companies to enter into the markets and sell the product or service.
All the buyers and sellers have complete information about the product or service which is being sold in the market.

A perfectly competitive market must meet the following requirements:
Both buyers and sellers are price takers.
The number of firms is large.
There are no barriers to entry.
The firms' products are identical.
There is complete information.
Firms are profit maximizers.

5.Basic Assumptions
Many small sellers each of whom produces an insignificant percentage of total market output and thus exercise no control over the market price

Many individual buyers – no control over the market price

No barriers to entry/ exit

Homogenous product – perfect substitutes. This leads to firm being passive ‘price takers’ and facing a perfectly elastic demand curve for their product.

No externalities arising from production and/or consumption which lie outside the market

6.Homogenous goods/services
Products perceived to be identical

Perfect substitutes

Consumers buy from cheapest provider

Each firm is a passive price taker

Firms face perfectly e l a s t i c demand curve for its product

7.Perfect Information
Consumers have readily available info about the market – prices and products from competing suppliers

Can access info at zero cost

Few transaction costs involved in searching for price info

8.Freedom of entry and exit
No barriers to entry /exit

Entry and exit from the market feasible in the long run

If firms are making abnormal profits, new firms can easily enter the market

This assumption ensures all firm make normal profits in the long run

9.Perfect Competition-Revenue Curve

10.Profit Maximisation in short run

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