Perfect Competition

Market structures describe important features of the economic environment in which firms operate.  A firm’s decisions about how much to produce or what price to charge depend on the structure of the market.  Perfect competition is the most basic of market structures. 

When a perfect competition exists it means that an individual buyer or seller has no control over the price since price is determined by MARKET demand and supply.  Because supply and demand is the determinants of price, price is fixed and can be represented as a horizontal line.  (See figure 1).

Figure 1:

 

Now that you know what a perfect competition market structure is, is it important to know how firms in this market structure maximize profit in the short run.  All firms try to maximize economic profit, which is any profit above normal profit.  Subtracting TC from TR is one way to find the profit maximization output.  Another way to find the profit maximizing rate of output is to focus on MR and MC.  When MR=MC profit maximization occurs.

Here are three important short run maximization graphs:

 

For more on perfect competition look under video’s

Oefeninge

VRAAG 1 Veronderstel dat Jan het R500 per maand wat hy spandeer op boeke vir sy Kindle of om Apps vir sy iPad te koop. Beide die boeke en Apps kos R100 elk oor die internet.  Die volgende tabel stel sy nut voor. Voltooi die tabel en bepaal by watter verbruikskombinasie hy sy nut sal maksimeer.				QUESTION 1 Suppose that Jan has R500 per month to spend on Kindle books or iPad Apps. Both of these cost R100 each over the internet The following table indicates his utility Complete the table and determine at which consumption combination he will maximise his utility.
	Kindle books				iPad Apps
Eenhede / Units	TU Totale nut	MU Grensnut	MU/P		TU Totale nut	MU Grensnut	MU/P
0	0					0
1	10					14
2	18					10
3	24					8
4	28					6

VRAAG 2		QUESTION 2
Die volgende tabel verteenwoordig die totale nut van Hotdogs en Amstel Lager wat deur Liezl verbruik word. Teken die tabel oor in jou antwoordskrif, voltooi en toon alle berekeninge. Lei Liezl se verbruikersewewigsposisie (hoeveelheid van  elke produk en bedrag daarop spandeer) vir die twee goedere af waar die prys van Hotdogs R10 per eenheid en die prys van Amstel lager R5 per eenheid is. Liezl se beskikbare inkome is R50.		The following table represents the total utility for Hotdogs and Amstel Lager consumed by Liezl. Redraw the table in your answer sheet, complete and show all calculations. Derive Liezl’s consumer equilibrium position (quantity of and expenditure on each product) for the two goods where the price of Hotdogs is R10 per unit and the price of Amstel lager is R5 per unit.   Liezl’s available income is R50.
Hotdogs @ R10 Amstel Lager @ R5 Q TU MU MU PH TU MU MU PA 0 0 0 1 750 550 2 790 25 3 30 20 4 830 610 5 4 622 6 824 612

VRAAG 3 Beantwoord die volgende vraag: Die prys van biltong het toegeneem vanaf R150 na R160 per kilogram.  As gevolg van die styging in prys het die hoeveelheid biltong gevra vanaf 1260 kilogram na 1207 kilogram per dag gedaal.

QUESTION 3 Answer the following question: The price of biltong increased from R150 to R160 per kilogram.  Due to the increase in price quantity demanded for biltong decreases from 1260 kilogram to 1207 kilogram per day.