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Perfect Competition

A perfectly competitive market is a hypothetical market where competition is at it's greatest possible level. Economists argue that perfect competition would produce the best possible outcomes for consumers and society.

Key Characteristics of a Perfectly Competitive Market

Perfect Knowledge About the Product

There is perfect knowledge, with no information failure or time lags in the flow of information. Knowledge about all products is freely available to all market participants, which means the risk taking is minimal and the role of any single firm is limited.
Given that the producers and consumers have perfect knowledge, it is assumed that they make rational decisions to maximise their self interest. Consumers look to maximise their utility, and producers look to maximise their profits.

No Barriers to Entry & Exit

There are no barriers to entry or exit into the market.

Homogeneous Products

Firms produce homogeneous or identical units of output that are not branded. Each unit of input, used by the firm to produce the product such as units of labour or raw materials are also homogeneous.

Firms Cannot Influence Market Price to Increase Their Profits

No single firm can influence the market price, or market conditions, given that there are a lot of sellers or producers and homogeneous products in the market, which a result of having no barriers of entry and exit.

Absence of Regulators

There is no need for government regulations, except to make the market more competitive.

No Involvement Of Third Party

There are no externalities, that is no external costs or benefits goes any third party not involved in the transaction.

No Branding or Advertising

There is no need to spend money on advertising, because there is perfect knowledge about the products. Selling unbranded goods makes it hard to construct an effective advertising campaign. So no single firm can influence or bend the market sentiments towards itself by promotional methods. All firms face a perfect competition in this way.

Industry as the Price Maker

A single firm takes its price from the industry which is a Price Maker, and consequently referred to as a Price Taker. The industry is composed of many firms and the Market Price is where the Market Demand is equal to the Market Supply. Each single firm must only charge this price and cannot diverge from it.

Normal Profits in Long Run

Firms can only make normal profits in the long run, that is they can only cover their opportunity cost.  Although sometimes they can make abnormal (super normal) profits or losses in the short run. If the incumbent firms are making super normal profits, new firms will be attracted to the industry and the market as there are no barriers to entry. The effect of this entry into the industry is that the supply of the product will increase which drives down the price until the point where all super normal profits are exhausted.
The super normal profit made by some firms in the short run acts as an incentive for new firms to enter the market, which increases the industry supply and market price falls for all firms until only normal profit is made. If the firms are making losses, they will leave the market, as there are no exit barriers, and this will decrease the industry supply, which raises prices and enables those left in the market to derive normal profits.

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The Intuitive Lowest Cost Method

The Intuitive Lowest Cost Method Or The Minimum Cell Cost Method

The Intuitive Lowest Cost Method is a cost based approach to finding an initial solution to a transportation problem.
It makes allocations starting with the lowest shipping costs and moving in ascending order to satisfy the demands and supplies of all sources and destinations.

This straightforward approach uses the following steps.
Identify the cell with the lowest cost.Allocate as many units as possible to that cell without exceeding the supply or demand.Then cross out the row or column or both that is exhausted by the above assignment.Move on to the next lowest cost cell and allocate the remaining units.Repeat the above steps as long as all the demands and supplies are not satisfied. 
When we use the Intuitive Approach to the Bengal Plumbing problem, we obtain the solution as below.

Transportation Matrix for Bengal Plumbing From \ To Warehouse E Warehouse F Warehouse G Factory Capacity Plant A Rs.50
Rs.40 100 Rs.30 100 Plant…

Vogel's Approximation Method (VAM)

The Vogel's Approximation Method

In addition to the North West Corner and Intuitive Lowest Cost Methods for setting an initial solution to transportation problems, we can use another important technique - Vogel's Approximation Method (VAM).
Though VAM is not quite as simple as Northwest Corner approach, but it facilitates a very good initial solution, one that is often the optimal solution.
Vogel's Approximation Method tackles the problem of finding a good initial solution by taking into account the costs associated with each alternative route, which is something that Northwest Corner Rule did not do.

To apply VAM, we must first compute for each row and column the penalty faced if the second best route is selected instead of the least cost route.

To illustrate the same, we will look at the Bengal Plumbing transportation problem.

Transportation Matrix for Bengal Plumbing From \ To Warehouse E Warehouse F Warehouse G Factory Capacity Plant A
Rs.30 100 Plant B


A market in any one of a variety of different systems, institutions, procedures, social relations or infrastructures whereby persons trade, and goods and services are exchanged, forming part of the economy. It is an arrangement that allows buyers and sellers to exchange things. Markets vary in size, range, geographical scale, locations, types and varieties of human communities, as well as in the types of goods and services traded. Some Examples include, local farmer's market held in town squares, Shopping Centres or shopping malls, Financial Markets such as International currencies or commodity markets or Equity stock markets, legally centred markets such as pollution permits, and illegal markets such as black markets for illicit drugs or weapons. In mainstream economics, the concept of market is any structure that allows buyers and sellers to exchange any type of goods, services and information. The exchange of goods or services for money is called a transaction. Thus a market ha…