Price Determination Under Perfect Competition

We all know that cost accounting's different tools are very useful to calculate correct and optimum selling price of product of company. But, before selecting this selling price and printing on each product, company manager should also calculate the price on economics rules and regulation. Only after this, manager can calculate best selling price of any product. We can say economics is the old form of modern finance. So, today, we will learn how to determine price under perfect competition.

In perfect competition, we can divide market in to perfect and imperfect market. Perfect competition is that situation of market in which there are large number of sellers and buyers. All the sellers sell the product on same price. So, price will determine with demand and supply of product. We have to make price list, quantity demanded and quantity of supply. We have to fix our selling price at that point where quantity demand will be equal to quantity supply by our supplier. This price will be called market price. You can see practical example in vegetable market. When there is no supply of vegetable, price will very high than other normal days. We can calculate price in two types of period.

Price determination in Short Period 

First of all we divide product into perishable and durable according to the nature of product. After this, we create demand and supply curves on the graph paper. In short period, price will be affected from demand because we can not increase our supply according to demand.

Price determination in Long Period

In long period, only normal price will be fixed at the point where total quantity of demand will be equal to the total quantity of supply. Company or firm will receive only normal profit at this equilibrium.

Following presentation  will be helpful to learn this concept deeply.


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Accounting Education: Price Determination Under Perfect Competition
Price Determination Under Perfect Competition
Accounting Education
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