Forms of Market and Price Determination

Market: It is defined as A place where buying and selling occurs.

According to Market Economist, A market is a process by which the prices of goods and services are established.

The first market system: It is exchanging by which goods or services are directly exchanged without using a medium of exchange, such as money.

Theory of firm under perfect competition:

• Perfect Competition is competition between a large number of buyers and a large number of sellers of a homogeneous product and uniform price.

Features of Perfect Competition:

• Large number of buyers and sellers
• Homogeneous product
• Freedom of entry or exit
• Perfect mobility
• Perfect Knowledge

Monopoly is meant to the single seller of a product with no close substitutes. Ex: Railways in India are a monopoly industry of the government of India.

Features of Monopoly

• One seller and large number of buyers
• Restrictions the entry of now firms
• No, close substitutes
• Full control over price
• Price disinclination

Monopoly is also called as price maker because monopoly can fix whatever price he wishes to fix his product

• Monopolistic competition: It is also market which has many sellers of the product but the product of each seller is different with other.

Features of monopolistic competition

• Large number of buyers and sellers
• Product differentiation
• Freedom of entry and exit of firm
• Selling cost
• Less mobility
• Lack of perfect knowledge
• Nonprice competition
• More can be sold at lower price
• Oligopoly: This is a form of the market in which there are a few big sellers of a commodity and a large number of buyers. Each seller has a significant share of the market

 Features of Oligopoly:

• A few firms
• Large number of buyer
• Entry barriers
• Not possible to determine firm’s demand curve
• Formation of cartels
• Non-price competition

4. Price line: the line plotted for different values of output price plan is called price line. In perfect competition the price line for both individual and demand curve are same.
5. Revenue: it refers to the money receipts of firm from the sale of its output
6. Total Revenue: It is the sum of revenue derived from the sale of all units of the commodity

TR=PXQ or ARXQ

Where, P= Price; Q=Output

AR=Average revenue

7. Average Revenue: It is the revenue per unit output sold AR=TR/Q
8. Marginal Revenue: It is the change in total revenue as a result of selling one more unit of output
9. Profit is the difference between revenue and cost. Profit=revenue-cost
10. Break Even Point: Breakeven for a firm occurs when it is able to cover its all costs of production. Accordingly, break –even point is defined as a situation when TR=TC or AR=AC under this situation, the firm earns only profits
11. Shutdown Point: It occurs when the firm is just able to cover its variable costs, increasing the loss of fixed cost of production. According shut down point is defined as a situation when TR=TVC or AR =AVC
12. Producer Equilibrium or Profit Maximization: A Producer is said to be in equilibrium when he maximizes his profits or minimizes his losses

Condition of Profit maximization

1. MR=MC

Me is rising or MC should cut MR from below