StudentShare solutions
Triangle menu

Perfect Competition - Essay Example

Nobody downloaded yet
Types of the services and commodities produced in perfect competition are undifferentiated (homogenous) i.e. the commodities produced are alike and because of this cause there is Promotion, marketing or publicity. Though it is not possible for a firm to be perfect model of perfect competition but there are some that are nearer for example; Stock Market, as there are lots of purchasers and vendors, no obstructions to entry and the good is not differentiated. (Mahanty, p. 264)
There is absolute sovereignty of admission of new firms into the Market. Firms already operating in the market are not capable to prevent new firms enter the business. Starting a business takes time, therefore freedom of entry concerns in the long run. An extension of this assumption is that there is complete factor mobility in the long run. If earnings are elevated than somewhere else, resources will be liberally attracted into that business. Similarly if wages are elevated than for comparable labor somewhere else, employees will liberally shift into that business and will face no hurdles. (Schnaars, p. 31)
If the firm's average cost (AC) curve (which incorporates normal profit) hangs beneath the firm's average revenue (AR) curve, the firm will make abnormal profit. Abnormal profit for each unit at Q1 is the vertical gap amid AR and AC at Q1. Entire abnormal profit is shown by the rectangle P1ABC in Figure 1.1.
There is also a situation when the firm cannot earn a...
Abnormal profit for each unit at Q1 is the vertical gap amid AR and AC at Q1. Entire abnormal profit is shown by the rectangle P1ABC in Figure 1.1.
There is also a situation when the firm cannot earn a profit at any level of production. This condition would arise if the firms AC curve were on top of the AR curve at each and every point. This is shown in figure 1.2, where the industry price is P2.In this situation, the position where MC curve intersects MR curve signifies the loss minimizing position .The total of loss is represented by the rectangle P2FED. (Parkin, p. 240)

Figure 1.1 and Figure1.2: Adopted from "Market Structures"

Pricing strategies in Perfect competition and Price Elasticity of demand
Pricing with no market control (perfect competition) is resolute in the industry (Market) by the meeting point of supply and demand. At this price the firm countenances a flat (horizontal) demand curve. See figure below, it demonstrates that the firm is able to trade all it can manufacture at the Industry (market) price (P1), but not anything at a price over P1. Which denotes that firm in Perfect Competition countenances perfectly elastic demand curve.

Figures Adopted from "Market Structures"

Therefore, all firms are price takers affirming their price at the Industry price of P1. Demand Curves of All firms are perfectly elastic. For an instance assume a firm might lower its price beneath P1 to seek and take some industry share from their rivals, but there is no need because all firms can trade as greatly as they desire at price P1.

Advantages and Limitations of operating in a Perfect Competition
1. Price equals marginal cost. ...Show more


1. Firms in perfect competition are Price takers. There are several firms in the Market(industry) that every individual firm generates an immaterially undersized percentage of whole industry supply, and consequently has no control what so ever to influence the price of the good.
Author : xcole
Perfect Competition essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Perfect Competition"
with a personal 20% discount.
Grab the best paper

Check these samples - they also fit your topic

Perfect Competition
The researcher states that perfect competition is whereby there are many buyers and sellers dealing with homogeneous products and no participant has the power to determine the price or quality of a product. Monopolistic competition is whereby there are many firms selling similar but not identical products.
6 pages (1500 words) Essay
Perfect Competition/Microeconomics
In economics, a perfect market is defined by several conditions: homogeneous product, free entry and exit of firms, absence of transaction/transport costs, large number of sellers and buyers, perfect knowledge. The perfectly competitive market only exists when all participants are price takers and none of them influence the price of the product.
4 pages (1000 words) Essay
Perfect Competition
It is these market structures which determine the behavior of the firm in that industry. Perfect competition is on one extreme of the spectrum. Although it may not exist in our world today it plays an important role as a model to study when analyzing levels of competition.
7 pages (1750 words) Essay
Perfect Competition and Monopoly
So the goal of the firm is profit maximisation. We shall study the two types of markets – perfect competition and monopoly, and discuss why in the long run the former earns normal profit but the later earns more than that. Perfect competition is a type of market which fulfils all these five assumptions.
10 pages (2500 words) Essay
Monopoly and Perfect Competition Markets
He has to give up “X” for “Y” so as to maximize his utility. There are other impediments also that force him to make rational decisions while choosing or allocating resources. Monopoly and perfectly competitive market are the two extreme continuum of market structures in which one can either get benefited or worsen off.
5 pages (1250 words) Essay
Perfect Competition and Monopoly
One needs to find a trade off to maximize his utility. Besides that, there are several hindrances which force him to make rational decisions while apportioning resources effectively. This principle segregates market into two extreme continuums of market structure which are Monopoly and perfectly competition.
5 pages (1250 words) Essay
Monopoly and Perfect Competition
As monopoly proceeds, the consumers will ultimately forego the product, especially consumers who value the product or service more than they value its cost. This tends to create a deadweight loss. The deadweight loss also indicates that the combined surplus for the monopolists and the consumers is always lower than that for perfect competition.
4 pages (1000 words) Essay
Perfect competition and monopoly power
Which form of market is better can be subject matter of discussion and is controversial issue. Perfect market is the starting point around which other market forms should revolve or regulated. The case study of Microsoft Corporation with its monopolistic product in application software used in every computer is given below to highlight the model of Monopolistic from of market.
3 pages (750 words) Essay
Perfect competition and the consumer
Price Takers: The number of firms in these types of market are numerous, and contribute to very little of the total industry. The firms face horizontal demand curve at the market price and the prices are
4 pages (1000 words) Essay
Perfect Competition
The point of intersection corresponds to the lowest point on each firm’s long-run average cost curve (LRAC). In the long run, competition forces a firm to adjust its scale until it achieves minimum average cost. The reason is that
2 pages (500 words) Essay
Hire a pro to write
a paper under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
Comments (0)
Click to create a comment
Contact Us