Firm under Perfect Competition Test - 1

Pure or perfect competition is a theoretical market structure in which the following criteria are met:

• All firms sell an identical product (the product is a "commodity "or "homogeneous ").
• All firms are price takers (they cannot influence the market price of their product). Market share has no influence on prices.

Globalization has had a significant and nearly instantaneous impact on India as a whole. The reduction of export subsidies and import barriers enabled free trade that made the untapped Indian market incredibly attractive to the international community .

Supernormal profit is defined as extra profit above that level of normal profit .
Here the firm earns profit of Rs. 2 over the cost occurred.

With loss minimization,price exceeds average variable cost but is less than average total cost at the quantity that equates marginal revenue and marginal cost.

In this case, the firm incurs a smaller loss by producing some output than by not producing any output.

The long-run equilibrium point for a perfectly competitive market occurs where the demand curve (price) intersects the marginal cost (MC) curve and the minimum point of the average cost (AC) curve.

Since they are the price takers and the price remains constant so does the AC of production .

In a monopolistic market, there is only one firm that produces a product. There is absolute product differentiation because there is no substitute.

• Themarginal cost of production is the change in the total cost that arises when there is a change in the quantity produced.
• The marginal revenue is the change in the total revenue that arises when there is a change in the quantity produced  a firm maximizes its total profit by equating marginal cost to marginal revenue and solving for the price of one product and the quantity it must produce.

Marginal revenue (MR) can be defined as additional revenue gained from the additional unit of output. Marginal revenue is the change in total revenue which results from the sale of one more or one less unit of output.
Formula :
Total revenue = TR
Total Unit = n
Total Unit less one unit = n-1
MR = TR_n -TR_n-1 .

A rational consumer is considered to be that person who makes rational consumption decisions.

In other words, the consumer who makes his choices after considering all the other alternative goods (and services) available in the market is called a rational consumer .

Pure or perfect competition is a theoretical market structure in which the following criteria are met:
1. All firms sell an identical product (the product is a "commodity "or "homogeneous ").
2. All firms are price takers (they cannot influence the market price of their product).
3. Market share has no influence on prices.
4. Buyers have complete or "perfect "information —in the past, present and future —about the product being sold and the prices charged by each firm.
5. Resources for such labor are perfectly mobile.
6. Firms can enter or exit the market without cost.

Producer ’s equilibrium refers to the state in which a producer earns his maximum profit or minimizes its losses.

According to the MR-MC approach, the producer is at equilibrium when the Marginal Revenue (MR) is equal to the Marginal Cost (MC) , and the Marginal Cost curve must cut the Marginal Revenue curve from below.

Two conditions under this approach are:

(i) MR = MC

(ii) MC curve should cut the MR curve from below, or MC should be rising.