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