Short Term Cost
PERFECT COMPETITION
PERFECT COMPETITION
Perfect competition (PC) is also called pure
competition. Market structure that characterized by many small firms, which sells homogenous, easy entry and exit, and perfect knowledge of the market.
Many small firms
The exact number of firms cannot be stated,
but there are a large number of small firms that each firm has no significant share of output.
Homogenous products
The products produced by firms are identical
or standardized. The products are so similar. There are no difference in the quality and hence, rules out the need for advertising.
Freedom of entry and exit
No barrier for new firm’s to enter the market. They do not need license and permits to
venture into this market.
Perfection of mobility factors of production
Factors of production are free to move from
one firm to another firm to gain good returns. The differences prices of factors of production will move until equilibrium points occurs.
Firms are price taker
Firms have no control over the price of products
that they sell. There is too much competition from other firms, which sell homogeneous products.
Perfect knowledge of the market
All sellers and buyers have perfect knowledge of
the market.
Sellers know the prices charged by other seller in
the market. The buyers must know the prices being charged by others sellers.
Price Determination in PCF
P D P
S
P
E
P
D=MR=AR
0
Q
Q
0
Q
Market Demand an Supply
Individual Firm Demand
DEFINITION OF SHORT RUN(SR)
Some input cannot be changed within a time period There 2 type of inputs: I. Fixed inputs II. Variable inputs
There 2 type of production of costs:
I. Fixed costs • Fixed costs are those that do not vary with output and typically include rents, insurance, depreciation, set-up costs, and normal profit. II. Variables costs • Variable costs are costs that do vary with output, and
PERFECT COMPETITION
Perfect competition (PC) is also called pure
competition. Market structure that characterized by many small firms, which sells homogenous, easy entry and exit, and perfect knowledge of the market.
Many small firms
The exact number of firms cannot be stated,
but there are a large number of small firms that each firm has no significant share of output.
Homogenous products
The products produced by firms are identical
or standardized. The products are so similar. There are no difference in the quality and hence, rules out the need for advertising.
Freedom of entry and exit
No barrier for new firm’s to enter the market. They do not need license and permits to
venture into this market.
Perfection of mobility factors of production
Factors of production are free to move from
one firm to another firm to gain good returns. The differences prices of factors of production will move until equilibrium points occurs.
Firms are price taker
Firms have no control over the price of products
that they sell. There is too much competition from other firms, which sell homogeneous products.
Perfect knowledge of the market
All sellers and buyers have perfect knowledge of
the market.
Sellers know the prices charged by other seller in
the market. The buyers must know the prices being charged by others sellers.
Price Determination in PCF
P D P
S
P
E
P
D=MR=AR
0
Q
Q
0
Q
Market Demand an Supply
Individual Firm Demand
DEFINITION OF SHORT RUN(SR)
Some input cannot be changed within a time period There 2 type of inputs: I. Fixed inputs II. Variable inputs
There 2 type of production of costs:
I. Fixed costs • Fixed costs are those that do not vary with output and typically include rents, insurance, depreciation, set-up costs, and normal profit. II. Variables costs • Variable costs are costs that do vary with output, and