Home » Price and Output Determination Under Perfect Competition

# Price and Output Determination Under Perfect Competition:

## Market Structure:

A market is a set of conditions in which buyers and sellers meet each other for the purpose of exchange of goods and services for money. Continue reading.

## Perfect Competition:

The concept of perfect competition was first introduced by Adam Smith in his book "Wealth of Nations". Continue reading.

## Equilibrium of the Firm:

A firm under perfect competition faces an infinitely elastic demand curve or we can say for an individual firm, the price of the commodity is given in the market. Continue reading.

## Short Run Equilibrium of the Price Taker Firm:

By short run is meant a length of time which is not enough to change the level of fixed inputs or the number of firms in the industry but long enough to change the level of output by changing variable inputs. Continue reading.

## Short Run Supply Curve of a Price Taker Firm:

In a competitive market, the supply curve of a firm is derived from its marginal cost curve. Supply curve is that portion of the marginal cost curve which lies above the average variable cost curve. Continue reading.

## Short Run Supply Curve of the Industry:

The short run supply curve of a competitive firm is that part of the marginal cost curve which lies above the average variable cost. Continue reading.

## Long Run Equilibrium of the Price Taker Firm:

All the firms in a competitive industry achieve long run equilibrium when market price or marginal revenue equals marginal cost equals minimum of average total cost. Continue reading.

## Long Run Supply Curve For the Industry:

While explaining the short run supply curve for the firm, we stated that the supply curve in the short run is that portion of the marginal cost curve which lies above the average variable cost curve, it is because of the fact that when the variable casts of a firm are realized, the firm decides to produce the goods. Continue reading.

## Price Determination Under Perfect Competition:

Dr. Alfred Marshall was the first economist who pointed out that the pricing problem should be studied from the view point of time. Continue reading.

## Market Price:

In a market, there are two sets of forces tending in the opposite direction. On the one side, there are large number of buyers who compete with one another for the purchase of commodities at lower prices. Continue reading.

## Determination of Short Run Normal Price:

In the short run, the size of a firm and the number of firms comprising an industry remain the same. The time is considered to be so short that if demand for product increases, the old firm can use their existing equipments more intensively but new firms cannot enter into the industry. Continue reading.

## Long Run Normal Price and the Adjustment of Market Price to the Long Run Normal Price:

When we speak of a long period, we do not mean an interval of time in which we all may be dead. By long run is meant the period in which the factors of production can be adjusted to changes in demand. Continue reading.

## Distinction/Difference Between Market Price and Normal Price:

The main points of distinction/difference between market price and normal price are as follows: Continue reading.

## Interdependent Prices:

We have discussed the determination of price and output of a firm (Market Price) producing a single commodity. We will be dealing now with the pricing of interconnected commodities. Continue reading.

## Joint Supply:

When two or more commodities come into existence as a result of a single process and with the same expenses, they are said to be in joint supply. Continue reading.

## Fixation of Railway Rates:

The railway freights are fixed on the principle of "What that traffic wilt bear". By the phrase "what the traffic will bear" is meant the fixation of railway rates according to the freight bearing capacity of each service performed by the railway. Continue reading.

## Composite or Rival Demand:

"If a commodity can be put to several uses, it is said to have composite or rival demand". Continue reading.

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