Question

Develop an analysis/model of perfect competition.

                        (1) What are the conditions of perfect competition ?

                        (2) In the short run, what is the industry result ?

                        (3) Develop a model demonstrating the result for one

                                    producer in the short run.

                        (4) What is the goal of the producer in the short run? How                           

does he achieve this goal? (What is “the rule”?)

     

Answer 1

Answer : Condition of perfect competition are :

• In perfect competion there are many buyers and sellers in the market selling homogenous product in the market place.
• All firms in the market access to factor of production.
• Free entry and exist from the market place .
• Perfect elastic demand curve.
• Perfect knowledge of the market place.

Answer : In short run , perfect competition market they are able to access at the point where economic profit has been generated but the rule of profit maximsation is same and result in Price is equal to marginal cost.

Answer : Agriculture product or local newspaper seller are perfect competition .

In the short run, a perfect competition market will earn super normal profit in the short run when there are no competitors available with them. Firms in perfect competition will earn profit maximisation at MC=MR. As there is only one seller in the market earning supernormal profit.

Answer : In the short run the goal of the producer is to earn maximum profit and to cover variable cost. If firm want to earn profit , than they should maximum at MR=MC. The goal of the producer in the short run to survive in the business in systematic manner.