Class 12 Micro Economics - Chapter The Theory of the Firm under Perfect Competition NCERT Solutions | What are the characteristics of a perfec
What are the characteristics of a perfectly competitive market?
This type of market structure refers to the market that consists of a larger number of buyers and also a large number of sellers. No buyers and also a large number of sellers. No individual seller is able to influence the price of an existing product in the market. All sellers in a perfect competition produce homogenous outputs i.e. the outputs of all the sellers are similar to each other and the products are uniformly priced.
Features of perfectly competitive market
The main features of perfectly competitive market are:
1. A larger number of buyers and sellers
There exist a larger number of buyers and sellers in a perfectly competitive market. The number of sellers is so large that no individual firm owns the control over the market
price of a commodity. Due to the large number of sellers in the market there exists a perfect and free competition. A firm acts as a price taker while the price is determined
by the invisible hands of market i.e. by demand for and supply of goods. Thus we can conclude that under perfectly competitive market an individual firm is a price taker and
not a price maker.
2. Homogenous products
All the firms in a perfectly competitive market produce homogeneous products. This implies that the output of each firm is perfect substitute to others output in terms of
quantity quality colour size features etc. this indicates that the buyers are indifferent to the output of different firms. Due to the homogeneous nature of products existence of
uniform price is guaranteed.
3. Free exit and entry of firms
In the Long run these is free entry and exit of firms. However in the short run some fixed factors obstruct the free entry and exit of firms. This ensures that all the firms in
the long-run earn normal profit or zero economic profit that measures the opportunity cost of the firms either to continue production or to shut down. If there are abnormal
profits new firms will enter the market and if there are abnormal losses a few existing firms will exit the market.
4. Perfect knowledge among buyers and sellers
Both buyers and sellers are fully aware of the market conditions such as price of a product at different places. The sellers are also aware of the prices at which the buyers
are willing to buy the product. The implication of this feature is that if any individual firm is charging higher or lower price for a homogeneous product the buyers will shift their purchase to other firms or shift their purchase from the firm to other firms selling at lower price.
5. No transport costs
This features means that all the firms have equal access to the market. The goods are produced and sold locally. Therefore there is no cost of transporting the product from
one part of the market to other.
6. Perfect mobility of factors of production
There exists geographically and occupationally perfect mobility of factors of production. This implies that the factors of production can move from one place to other and can
move from one job to another.
7. No promotional and selling costs
There are no advertisements and promotional costs incurred by the firms. The selling costs under perfectly competitive market are zero.
More Questions From Class 12 Micro Economics - Chapter The Theory of the Firm under Perfect Competition
- Q:-
The market price of a good changes from Rs 5 to Rs 20. As a result, the quantity supplied by a firm increases by 15 units. The price elasticity of the firm’s supply curve is 0.5. Find the initial and final output levels of the firm.
- Q:-
A firm earns a revenue of Rs 50 when the market price of a good is Rs 10. The market price increases to Rs 15 and the firm now earns a revenue of Rs 150. What is the price elasticity of the firm’s supply curve?
- Q:-
What is the supply curve of a firm in the long run?
- Q:-
How does the imposition of a unit tax affect the supply curve of a firm?
- Q:-
What is the relation between market price and average revenue of a price-taking firm?
- Q:-
What is the relation between market price and marginal revenue of a price-taking firm?
- Q:-
How does an increase in the number of firms in a market affect the market supply curve?
- Q:-
How does an increase in the price of an input affect the supply curve of a firm?
- Q:-
Compute the total revenue, marginal revenue and average revenue schedules in the following table. Market price of each unit of the good is Rs 10.
Quantity Sold TR MR AR 0
1
2
3
4
5
6 - Q:-
How does technological progress affect the supply curve of a firm?
Popular Questions of Class 12 Micro Economics
- Q:-
Explain the concept of a production function
- Q:-
What would be the shape of the demand curve so that the total revenue curve is?
(a) A positively sloped straight line passing through the origin?
(b) A horizontal line?
- Q:-
Explain market equilibrium.
- Q:-
Discuss the central problems of an economy.
- Q:-
What do you mean by the budget set of a consumer?
- Q:-
What is the total product of input?
- Q:-
From the schedule provided below calculate the total revenue, demand curve and the price elasticity of demand:
Quantity
1
2
3
4
5
6
7
8
9
Marginal
Revenue
10
6
2
2
2
0
0
0
-
- Q:-
When do we say that there is an excess demand for a commodity in the market?
- Q:-
What do you mean by the production possibilities of an economy?
- Q:-
What is budget line?
Recently Viewed Questions of Class 12 Micro Economics
- Q:-
Considering the same demand curve as in exercise 22, now let us understand for free entry and exit of the firms producing commodity X. Also assume the market consists of identical firms producing commodity X. Let the supply curve of a single firm be explained?
q*= 8+3p for p ≥ 20
= 0 for 0 ≤ p ≤ Rs 20
(a) What is the significance of p =20?
(b) At what price will the market for X be in equilibrium? State the reason for your answer.
(c) Calculate the equilibrium quantity and number of firms.
- Q:-
What are the total fixed cost, total variable cost and total cost of a firm? How are they related?
- Q:-
A shift in demand curve has a larger effect on price and smaller effect on quantity when the number of firms is fixed compared to the situation when free entry and exits is permitted. Explain.
- Q:-
Compare the effect of shift in the demand curve on the equilibrium when the number of firms in the market is fixed with the situation when entry-exit is permitted.
- Q:-
The following table shows the total cost schedule of a firm. What is the total fixed cost schedule of this firm? Calculate the TVC, AFC, AVC, SAC and SMC schedules of the firm.
- Q:-
How are the equilibrium price and quantity affected when?
(a) Both demand and supply curves shift in the same direction?
(b) Demand and supply curves shift in opposite directions?
- Q:-
When does a production function satisfy constant returns to scale?
- Q:-
What is the marginal product of an input?
- Q:-
What is the law of variable proportions?
- Q:-
What is the total product of input?
- All Chapters Of Class 12 Micro Economics
- All Subjects Of Class 12