Page 145 - DECO405_MANAGERIAL_ECONOMICS

Managerial Economics Ashwani Panesar, Lovely Professional University

Notes Unit 9: Market Structure – Perfect Competition

CONTENTS
Objectives

Introduction
9.1 Assumptions of Perfect Competition

9.2 Price and Output Determination under Perfect Competitive Firm
9.2.1 Short Run Analysis of a Perfectly Competitive Firm

9.2.2 Long Run Analysis of a Perfectly Competitive Firm
9.2.3 Shut-down Decision

9.2.4 Efficiency of a Firm
9.3 Supply and Demand Together

9.4 Summary
9.5 Keywords

9.6 Self Assessment
9.7 Review Questions

9.8 Further Readings

Objectives

After studying this unit, you will be able to:

State the assumptions of perfect competition
Discuss the price and output determination under perfect competition

Introduction

The function of a market is to enable an exchange of goods and services to take place. A market
is any organisation whereby buyers and sellers of a good are kept in close touch with each other.
It is precisely in this context that a market has four basic components (i) consumers (ii) sellers
(iii) a commodity (iv) a price. Price determination is one of the most crucial aspects in micro-
economics. Business managers are expected to make perfect decision based on their knowledge
and judgment. Since every economic activity in the market is measured as per price, it is important
to know the concepts and theories related to pricing under various market forms.
Perfect competition is a market structure characterised by a complete absence of rivalry among
the individual firms. Thus, perfect competition in economic theory has a meaning diametrically
opposite to the everyday use of this term. In practice, businessmen use the world competition as
synonymous to rivalry. In theory, perfect competition implies no rivalry among firms.

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