TOPIC:‘PRICE DETERMINATION UNDER PERFECT

COMPETITION IN SHORT RUN’

PERFECT COMPETITION:A competition in which no participating (buyer/seller) is big enough to influence the market in order to set the price of product.In a market, it is understood that some sellers sell same nature of good but if there is perfect competition in the market, all sellers will sell that particular good at same market price.

For instance_ if we want to buy a perfume from max bachat at certain price then we will definitely find it in national super market at the same price rate. As there is a perfect competition so we will buy the same commodity at same rate in all parts of the market.

SHORT RUN

“The existing firms can alter the quantity supplied but no new firms can enter the industry”

It means that there is certain numbers of firms in an industry and they are fixed in number, so there is no room for any other new firm to enter into the industry. The existing firms are able to adjust the quantity of inputs (raw material, transport etc) at any time in short run period.

PERFECT COMPETITION IN SHORT RUN

“ The time period in which inputs can alter easily without introducing new firms in a situation/place where the same commodity sell at same price in all parts of the market”

PRICE DETERMINATION UNDER PERFECT COMPETITION

As there is perfect competition so the price is set by the industry b/c industry is considered to be as a price maker. In perfect competition price is determined by the forces of demand & supply It means when the customer’s demand increases it will excite the seller to increase its supply in order to fulfill the customer’s needs. As the following diagram shows:

It means at the equilibrium point seller is successful to fulfill the customer’s needs and buyer is also happy to get it.

As Alfred Marshall rightly said : ‘Both buyers and sellers are needed to determine the price of the commodity as both are the blades of a scissors which are

needed to cloth.’Alone they can not influence the whole market.

Information box

Coca cola and Pepsi dominate the cola market in to the whole world. There is a perfect competition and each is aware of the actions of the other. The decision of one, will influence the decision of other. If coca cola increase its price it will be difficult for Pepsi to sell its drinks and vice versa. Their strategies are predictable and not very different from other. So they both remain parallel to each other.