Relation Between Partisan Optima And Perfect Competition
son between two goods is equal to the ratio of their prices for any consumer wherefore the first condition of optimum allocation of goods is satisfied under perfect competition
Under conditions of perfect competition. the producer in order to have the minimum lost combing ion of the factors to produce a given output tries to equate the marginal ate. of transformation between two factors to the ratio of their prices. At equilibrium we know, this condition is satisfied. Hence the condition about the Pentium allocation of factors is also satisfied.
Tile producer under perfect competition. in order to maximize his profits tries to quite the marginal rate of transformation between the two commodities to the ratio f their prices and at equilibrium this condition I met Thus the condition about the optimum utilization of factor is satisfied.
know that at equilibrium. the marginal rate of Tucson between the two commodities is equal to the marginal rate of transformation between the two commodities and both are equal to the ratio of their prices. Therefore. the condition bout the optimum direction of production is also satisfied.
Under perfect competition’. a factor will be utilized to the point where the marginal ate of substitution between employment of the factor and its leisure equals the rate f payment made to it. Similarly. with a view to maximizing his profit. a producer equates the marginal rate of transformation between the factor and its product. nice the price of the product is the same for all the producers and the rate of payment is the same for all the fact of units the condition of optimum allocation of factor unit’s time is also satisfied.
All owner of an asset makes the marginal rate of substitution between present income and future income equal to his rate of time preference the same way a or rower of the asset equates the cost of borrowing with the marginal rate of substitution between the present asset and future asset Since under perfect competition. the rate of payment for all similar assets is the same. as also the cost to he borrowers. it is equal to the marginal productivity of the asset. In this way. the condition relating to the inter-temporal optimum allocation assets is also fulfilled under perfect competition From the above it is clear that under perfect competition all the marginal conditions of Partisan optimum are satisfied However. the fulfillment of these conditions sub
Under perfect competition at equilibrium there is an equality between price and marginal private cost of production and not between price and marginal social cost of production. Marginal private cost of production is calculated from the point of view f he producer. whereas the marginal social cost of product n is calculated from the point of view of the a hole. And there may be a wide divergence t wen the marginal private cost and the marginal ital co t The following example will e the aye e responsible for pollution the the e emitted by his chimney He i for thee disservice to he society. 0 the on ed by the producer may be equal to the Jilin final pro c c but not the marginal social co