Core-0014 Perfect Competition
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About Core-0014 Perfect Competition
About the Teacher
Jay Moulton
Jay Moulton is a business veteran. In short:
- Corporate finance and turnaround expert in U.S. and Canada
- CEO or operator of numerous companies in many industries
- 30 years of actually applying business economics principles
- Successfully led and invested in several leveraged buyouts
- Director or advisor to 30+ different companies
- Experience in both for-profit and not-for-profit sectors
- Producer of 700 professional videos and several TV shows
- Author of six economics and business strategy books
- Graduate of Harvard Business School MBA program
- Graduate of The Royal Military College of Canada
- Professional electrical engineer
- Governor of the Harvard Club of British Columbia
Perfect Competition
MODULE 1
Perfect competition is one of the four market structures. In this market structure, all firms are “price takers” and cannot influence prices. Perfect competition features no barriers to entering or exiting the market. In this chapter, we explore perfect competition using the pig market in a real world setting.
Introduction
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The video explores market supply and demand curves in perfect competition. A pig farm illustrates how this market structure works.
In perfect competition, firms sell identical products, there are many firms in the market place and no one firm can control price.
The video looks at the four different scenarios in perfect competition.
In perfect competition, when Price = Marginal Cost = Short- Run Average Total Cost = Long-Run Average Total Cost, long-run equilibrium is achieved.
Profit Scenario
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The video shows profit maximization in perfect competition, using her father’s pig farm as an example.
A summary of the costs in the pig farm example of perfect competition.
There are two break-even points in this example of perfect competition, break-even point.
After drawing our Marginal Cost, Marginal Revenue and Average Total Cost curves, we know that our maximum profit will be realized at the point that the Marginal Revenue equals Marginal Cost.
In a profit scenario, each individual firm receives a price that is higher than their cost. Each firm is profitable and produces a quantity at which marginal cost equals price.
Minimizing Losses
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The video illustrates the loss scenario in detail using a pig farm as an example. When market price drops to a level where economic profits are no longer possible, it is important to know how to maximize profits or minimize losses depending on the level to which the price has dropped.
A summary of the costs in the pig farm example of perfect competition.
In a loss scenario, with no shutdown, the market price falls below the firm's average total cost.
Calculating where the maximum profit is realized in the pig farm example.
Shutdown
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The video uses the example of pig farming to determine when a firm in perfect competition needs to shut down and leave the market.
Finding the shutdown point for the pig farm example.
In a loss scenario, with shutdown, the market price falls below the firm's average total cost and below its average variable cost.
Supply and Demand
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The video explains that in a perfectly competitive market, the price that each firm faces is determined by the market.
In a perfectly competitive market, the intersection of the market supply curve and the market demand curve determines both the equilibrium price and the quantity demanded.
In a perfectly competitive market, price is determined by the intersection of the market supply curve and the market demand curve.
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