## Karnataka 2nd PUC Economics Notes Chapter 5 The Theory of the Firm and Perfect Competition

Generally, the term market is a market place where goods are sold and bought. But in Economics, by market we mean a commodity whose buyers and sellers are in direct contact with one another. According to Prof.J.C.Edwards, “A market is that mechanism by which buyers and sellers are brought together. It is not necessarily a fixed place”.

Market is classified as follows:
A. On the basis of Size

• Local Market
• Regional market
• National Market
• International Market

B. On the basis of Time

• Very Short Period Market
• Short Period Market
• Long Period Market

C. On the basis of Competition

• Perfect Competition
• Imperfect Competition

Imperfect Competition is further classified as follows:

• Monopoly
• Duopoly
• Oligopoly
• Monopolistic Competition

Perfect Competition:

→ It is a form of market in which there are a large number of buyers and sellers.

→ They sell homogeneous goods. A firm produces only a small portion of the total output produced by the whole industry. An industry is a group of different firms producing the same product. A single firm cannot affect the price by its individual efforts.

Meaning of market:
Generally, the term market is a market place where goods are sold and bought. But in Economics, by market we mean a commodity whose buyers and sellers are in direct contact with one another. According to Prof.J.C.Edwards “A market is that mechanism by which buyers and sellers are brought together”.

Revenue:
Revenue refers to the money income received by a firm or producer or seller after the sale of commodities.

Calculation of AR:
The Average Revenue can be obtained by dividing the Total Revenue by the number of units sold i.e., AR = TR/Q

Supply:
The supply in economics refers to the quantity of a product which the sellers or producers offer for sale at a particular level of price and particular period of time.

→ Price Elasticity of Supply: To calculate Price Elasticity of Supply, the following formula is used.
PED = $$\frac{\Delta q}{\Delta p} \times \frac{p}{q}$$ where Δq is change in quantities supplied, Δp is change in price, ‘P’ is original price and ‘q’ is original quantity

→ Marginal Revenue: It is an additional revenue from additional unit of output sold. It is obtained by MR = TRn – TRn – 1

Price mechanism:
The process of determination of price of goods and services through market forces viz., demand and supply is called ‘Price Mechanism’

Meaning of equilibrium:
Equilibrium refers to a position of rest. It is a position from which the producer or a firm has no tendency to move or change.

Equilibrium Price:
The equilibrium price is that level of price which is determined at the point where the demand and supply intersect (i.e., when supply and demand become equal).