NCERT Class 12 Economics The Theory of the Firm under Perfect Competition

Read and download NCERT Class 12 Economics The Theory of the Firm under Perfect Competition chapter in NCERT book for Class 12 Economics. You can download latest NCERT eBooks for 2022 chapter wise in PDF format free from Studiestoday.com. This Economics textbook for Class 12 is designed by NCERT and is very useful for students. Please also refer to the NCERT solutions for Class 12 Economics to understand the answers of the exercise questions given at the end of this chapter

The Theory Of The Firm Under Perfect Competition Class 12 Economics NCERT

Class 12 Economics students should refer to the following NCERT Book chapter The Theory Of The Firm Under Perfect Competition in standard 12. This NCERT Book for Grade 12 Economics will be very useful for exams and help you to score good marks

The Theory Of The Firm Under Perfect Competition NCERT Class 12

 

In the previous chapter, we studied concepts related to a firm’s production function and cost curves. The focus of this chapter is different. Here we ask : how does a firm decide how much to produce? Our answer to this question is by no means simple or ncontroversial. We base our answer on a critical, if somewhat unreasonable, assumption about firm behaviour – a firm, we maintain, is a ruthless profit maximiser. So, the amount that a
firm produces and sells in the market is that which maximises its profit.
The structure of this chapter is as follows. We first set up and examine in detail the profit maximisation problem of a firm. This  done, we derive a firm’s supply curve. The supply curve shows the levels of output that a firm chooses to produce for different values of the market price. Finally, we study how to aggregate the supply curves of individual firms and obtain the market supply curve.

PERFECT COMPETITION: DEFINING FEATURES

In order to analyse a firm’s profit maximisation problem, we must first specify the market environment in which the firm functions. In this chapter, we study a market environment called perfect competition. A perfectly competitive market has two defining features 1. The market consists of buyers and sellers (that is, firms). All firms in the market produce a certain homogeneous (that is, undifferentiated) good. 2. Each buyer and seller in the market is a price-taker. Since the first feature of a perfectly competitive market is easy to understand, we focus on the second feature. From the viewpoint of a firm, what does price-taking entail? A price-taking
firm believes that should it set a price above the market price, it will be unable to sell any quantity of the good that it produces. On the other hand, should the set price be less than or equal to the market price, the firm can sell as many units of the good as it wants to sell. From the viewpoint of a buyer, what does pricetaking entail? A buyer would obviously like to buy the good at the lowest possible price. However, a price-taking buyer believes
that should she ask for a price below the market price, no firm will be willing to sell to her. On the other hand, should the price asked be greater than or equal to the market price, the buyer can obtain as many units of the good as she desires to buy.
Since this chapter deals exclusively with firms, we probe no further into buyer behaviour. Instead, we identify conditions under which price-taking is a reasonable assumption for firms. Price-taking is often thought to be a
reasonable assumption when the market has many firms and buyers have perfect information about the price prevailing in the market. Why? Let us start with a situation wherein each firm in the market charges the same (market) price and sells some amount of the good. Suppose, now, that a certain firm raises its price above the market price. Observe that since all firms produce the same good and all buyers are aware of the market price, the firm in question loses all its buyers. Furthermore, as these buyers switch their purchases to other firms, no “adjustment” problems arise; their demands are readily accommodated when there are many firms in the market. Recall, now, that an individual firm’s inability to sell any amount of the good at a price exceeding the market price is precisely what the price-taking assumption stipulates.

Excercise

1. What are the characteristics of a perfectly competitive market?
2. How are the total revenue of a firm, market price, and the quantity sold by the firm related to each other?
3. What is the ‘price line’?
4. Why is the total revenue curve of a price-taking firm an upward-sloping straight line? Why does the curve pass through the origin?
5. What is the relation between market price and average revenue of a pricetaking firm?
6. What is the relation between market price and marginal revenue of a pricetaking firm?
7. What conditions must hold if a profit-maximising firm produces positive output in a competitive market?
8. Can there be a positive level of output that a profit-maximising firm produces in a competitive market at which market price is not equal to marginal cost? Give an explanation.

9. Will a profit-maximising firm in a competitive market ever produce a positive level of output in the range where the marginal cost is falling? Give an explanation.
10. Will a profit-maximising firm in a competitive market produce a positive level of output in the short run if the market price is less than the minimum of AVC? Give an explanation.
11. Will a profit-maximising firm in a competitive market produce a positive level of output in the long run if the market price is less than the minimum of AC? Give an explanation.
12. What is the supply curve of a firm in the short run?

13. What is the supply curve of a firm in the long run?


Please refer to attached file for NCERT Class 12 Economics The Theory of the Firm under Perfect Competition

Tags: 

 


Click to View or Download pdf file
Click for more Economics Study Material
Part A Introductory Microeconomics Glossary
NCERT Class 12 Economics Glossary
Part A Microeconomics Chapter 1 Introduction to Micro Economics
NCERT Class 12 Economics Introduction
Part A Microeconomics Chapter 2 Theory of Consumer Behaviour
NCERT Class 12 Economics Theory of Consumer Behaviour
Part A Microeconomics Chapter 3 Production and Costs
NCERT Class 12 Economics Production and Costs
Part A Microeconomics Chapter 4 The Theory of the Firm under Perfect Competition
NCERT Class 12 Economics The Theory of the Firm under Perfect Competition
Part A Microeconomics Chapter 5 Market Equilibrium
NCERT Class 12 Economics Market Equilibrium
Part A Microeconomics Chapter 6 Non-competitive Markets
NCERT Class 12 Economics Non competitive Markets
Part B Introductory Macroeconomics Glossary
NCERT Class 12 Economics Introductory Macroeconomics Glossary
Part B Macroeconomics Chapter 2 National Income Accounting
NCERT Class 12 Economics National Income Accounting
Part B Macroeconomics Chapter 3 Money and Banking
NCERT Class 12 Economics Money and Banking
Part B Macroeconomics Chapter 4 Determination of Income and Employment
NCERT Class 12 Economics Income Determination
Part B Macroeconomics Chapter 5 Government Budget and The Economy
NCERT Class 12 Economics Introductory Macroeconomics Government Budget and The Economy
NCERT Class 12 Economics The Government Functions and Scope
Part B Macroeconomics Chapter 6 Open Economy Macroeconomics
NCERT Class 12 Economics Open Economy Macroeconomics

Latest NCERT & CBSE News

Read the latest news and announcements from NCERT and CBSE below. Important updates relating to your studies which will help you to keep yourself updated with latest happenings in school level education. Keep yourself updated with all latest news and also read articles from teachers which will help you to improve your studies, increase motivation level and promote faster learning

Board Exams Date Sheet Class 10 and Class 12

Datesheet for CBSE Board Exams Class 10  (Scroll down for Class 12 Datesheet) Datesheet for CBSE Board Exams Class 12

Class 10th and 12th Term 2 Revaluation Process 2022

Evaluation of the Answer Books is done under a well-settled Policy. To ensure that the evaluation is error free, CBSE is taking several steps. After strictly following these steps, the result is prepared. Though, CBSE is having a well-settled system of assessment,...

Heritage India Quiz 2021 2022

CBSE Heritage India Quiz is conducted every year to raise the awareness about the preserving human heritage, diversity and vulnerability of the India's built monuments and heritage sites. It is an attempt of the Board to motivate the future generations of this country...

Online courses for classes XI and XII offered by NCERT

Ministry of Education (MoE), Government of India has launched a platform for offering Massive Open Online Courses (MOOCs) that is popularly known as SWAYAM (Study Webs of Active learning for Young Aspiring Minds) on 9 th July, 2017. NCERT now offers online courses for...

CBSE Science Challenge 2021 22

Science is inexplicably linked with our lives and helps us to understand the world around us better. Scientific and technological developments contribute to progress and help improve our standards of living. By engaging with this subject, students learn to think, solve...

CBSE Term 2 Board Examinations

CBSE vide Circular No.Acad-51/2021 dated 5th July, 2021, notified that in the session 2021-2022, Board Examinations would be conducted in two terms, i.e.. Term I and Term II. This decision was taken due to the uncertainty arising out of COVID 19 Pandemic. Term I...