Profit in Perfect Competition Market

Short-run profit in perfect competition market

In the short term, perfect competition market will have three different types of profit

such as supernormal profit, normal profit and subnormal profit.

A. Supernormal Profit

The profit maximization occurs when marginal cost equal marginal revenue at a

price of P (RM20) and quantity at Q (9 units).

The firm earns supernormal profit when average revenue (AR) is greater than

average cost (AC).

Based on above diagram, average revenue is RM20 and average cost is RM15.

So, the firm will get the supernormal profit because total revenue (RM180) is

greater than total cost (RM135).

The shaded area (EABP) is shown the profit (supernormal profit) area.

Known as economic profit; (evidence) calculation

B. Subnormal Profit 

The profit maximization occurs when marginal cost equal marginal revenue at a

price of P (RM20) and quantity at Q (9 units).

The firm earns normal profit when average revenue (AR) is equal with average

cost (AC). Price is equal at minimum AC, firm at breakeven profit.

Based on above diagram, average revenue is RM20 and average cost is also

RM20.

So, the firm will get the normal profit because total revenue (RM180) is equal

with total cost (RM180).

Known as economic profit; (evidence) calculation

B. normal Profit 

The profit maximization occurs when marginal cost equal marginal revenue at a
price of P (RM20) and quantity at Q (9 units).

The firm earns subnormal profit when average revenue (AR) is less than average
cost (AC).

Based on above diagram, average revenue is RM20 and average cost is RM25.

So, the firm will get the subnormal profit because total revenue (RM180) is less
than total cost (RM225).

The shaded area (EPAB) is shown the subnormal profit (losses) area.

Known as economic profit; (evidence) calculation

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Characteristics Perfect Competition Market

4.1       Perfect Competition Market

Perfect competition market is market in which there are a large number of buyers and sellers, buying and selling the homogenous products at certain price levels. Examples of products in perfect competition market are agricultural goods such as vegetable, fruits and others.

Characteristics  

a.                  Large number of buyers

There are many buyers in the market but they cannot control prices. Price is fixed in the market through the forces of demand and supply. No matter how much has been purchased, price is always constants. Buyers are said to be price takers.

b.                  Many sellers in the market

There are many sellers in the market. Like the buyers they too cannot control price. They are also price takers. Usually the sellers are small firms. The action of one firm will affect to others firms. Example; if the seller offers a lower price, then he will incur a loss, and if he sells at a higher price, there will be no demand. In other words, he is powerless in determining price but he can set the quantity he wants to sell.

c.                   The product are homogenous

The goods are homogenous and not differentiated. They are identical. The consumer cannot differentiate whether the goods come from producer A or B or C. Advertising is totally absent in this market.

d.                  Free entry to and exit from the market

There must be free entry to and exit from the market. If the industry is making profits, then new firms will enter the market. Otherwise, some firms will leave the market. No restriction is imposed.

e.                  Perfect knowledge

Both the consumers and the producers have perfect knowledge about the market situation. They know the current prices in all markets.

f.                    Mobility of factors of production

There must be mobility of factors of production. This means that factors of production are mobile. There are no barriers to mobility. As for land, it must have alternative uses.

g.                  No transportation cost

There must be no transportation cost. It is assumed that all firms are situated close to one another and are very close to the market.

h.                  Independence in decision making

There will be no external forces that will influence the decision of buyers and seller. They make their own decisions.

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Market Structure: Introduction

4.0       INTRODUCTION

This topic discusses all the theories about different markets. Different markets will make different decisions on the determination of quantities and prices. In this topic, we will discuss the characteristics of each market. We discuss how the determination of the profits in the short and long term.  

Market is an arrangement that facilitates the buying and selling of a product, service, factor of production or future commitment. Or in other words, a market is a place where the buyers and sellers meet one another to transact business.

Market structure refers to the number and distribution size of buyers and sellers in the markets of particular goods and services. Market structure divided to perfect competition, monopolistic, monopoly and oligopoly.  

Profit maximization in perfect competition market 

Market equilibrium is achieved when the marginal cost equal to marginal revenue. Price is determined based on the average revenue. Prices are fixed in perfect competition, so marginal revenue is still the same results at a price.

MR = MC

P = AR = MR

Although, in the imperfect competition such as monopolistic, monopoly and oligopoly the market equilibrium achieved when marginal revenue equal with marginal cost. Price is different based on quantity supplied.

MR = MC

P = AR

A firm in the short-run will possibly enjoy three types of profit. The possibilities are:

a.                  Supernormal profit

The profit earned when total revenue is greater than total cost. It also realized when the price is greater than average total cost. 

b.                  Subnormal profit

Economic losses are the losses incurred because the price is lower than the average total cost or when total revenue is less than total cost. 

c.                   Normal profit

Normal profit or breakeven is the profit necessary for a firm to stay in business. Normal profit is when total revenue is equal to total cost and where no profit or loss is incurred.

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PERODUA kaji keluar model sedan

Berita Harian 31 mei 2012
Oleh Che Wan Badrul Alias
2012/05/31


PERUSAHAAN Otomobil Kedua Sdn Bhd (PERODUA) sedang mengkaji kemungkinan untuk mengeluarkan model sedan pertamanya tidak lama lagi.

Model berkenaan dijangka menerapkan beberapa elemen daripada model prototaip, Bezza yang sebelum ini diperkenalkan kepada umum ketika Pameran Motor Antarabangsa Kuala Lumpur (KLIMS) 2010.

Pengarah Urusannya Datuk Aminar Rashid Salleh, berkata kajian itu adalah sebahagian daripada usaha PERODUA untuk memenuhi permintaan pengguna yang mahukan pengeluar kereta nasional kedua itu menambah portfolio model kenderaannya kepada sekitar empat atau lima berbanding hanya tiga pilihan ketika ini.

Katanya, syarikat amat berminat untuk membangunkan model baru sedan pada masa depan.

Namun, katanya, ia perlu mendapat kelulusan kerajaan, pemegang saham, Lembaga Pengarah dan lebih-lebih lagi Daihatsu yang terkenal dengan pengkhususannya dalam segmen kereta kompak.

“Kami sedang mengkaji semua ini kerana bukan mudah untuk membangunkan model baru itu dan kami sentiasa mengadakan perbincangan dengan pihak Daihatsu.

“Bezza adalah model konsep yang kami banggakan kerana ia membuktikan keupayaan dan kepakaran yang syarikat miliki hasil daripada kerjasama kukuh dengan rakan teknologi PERODUA.
“Namun kami sentiasa mencari jalan untuk memaksimumkan keupayaan yang kami miliki ini dalam model keluaran akan datang. Kalau kami tak boleh buat Bezza secara keseluruhan, akan ada elemen daripada model ini yang akan kami gunakan untuk keluaran model baru nanti,” katanya pada sidang media selepas memeterai memorandum pembelian sebidang tanah milik UMW Corporation Sdn Bhd di Rawang, semalam.

Hadir sama, Presiden dan Ketua Eksekutif Kumpulan UMW Corporation, Datuk Syed Hisyam Syed Wazir.

Menerusi perjanjian itu, PERODUA membeli 25.9 hektar kawasan berharga RM16.7 juta daripada UMW Corporation berhampiran lokasi ibu pejabatnya di Sungai Choh, Rawang untuk dibangunkan dengan kemudahan baru serta menambah prasarana bagi kemudahan sedia adanya.

Kemudahan baru yang dirancangnya meliputi masjid, pusat penjagaan kanak-kanak, gimnasium mini, lapangan letak kereta tambahan dan prasarana utiliti yang semuanya akan dibangunkan secara berperingkat.

Ketika ditanya sama ada UMW membenarkan PERODUA membangunkan kereta sedan, Syed Hisyam berkata, pihaknya sentiasa menyokong semua usaha yang cuba dilaksanakan untuk mengembangkan perniagaannya.

Katanya, ia termasuk cadangannya membangunkan model baru dan peruntukkan pelaburan baru kerana pihaknya amat gembira dengan prestasi yang dicapai PERODUA ketika ini.

“Sebagai pemegang saham tunggal terbesar PERODUA iaitu dengan pegangan 38 peratus, kami sentiasa menyokong perancangan pengembangan mereka lebih-lebih lagi di bawah kepimpinan Aminar Rashid yang berjaya memacu PERODUA ke tahap yang lebih tinggi,” katanya.

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