Q.(a) How price and output are determined under the perfect competition ?

(a) Under perfect competition the market fixes price through demand and supply, and each price-taking firm produces where MC = MR = price; long-run free entry/exit gives only normal profit at minimum AC. (b) Tamil Nadu's public transport spans road (state bus corporations), rail (Southern Railway and Chennai Metro/MRTS), air and sea ports.

(a) Price and output determination under perfect competition

1. The firm is a price-taker: In perfect competition there are many buyers and sellers of a homogeneous product, so no single firm can influence the price. The price is determined for the whole industry by the interaction of market demand and market supply, and each firm accepts that price. For the firm, therefore, Price = AR = MR (a horizontal demand curve).
2. Firm's equilibrium (output determination): The firm produces the output at which its profit is maximum, i.e., where Marginal Cost = Marginal Revenue (MC = MR) and the MC curve cuts the MR curve from below (rising MC). Since MR = price here, equilibrium is where MC = MR = P.
3. Short-run situation: In the short run the firm may earn:
   • Supernormal profit if Price > AC,
   • Normal profit if Price = AC,
   • Loss if Price < AC (it continues producing so long as Price ≥ AVC; it shuts down if Price < AVC).
4. Long-run equilibrium: Because of free entry and exit, supernormal profits attract new firms (lowering price) and losses drive firms out (raising price), until only normal profit remains. In long-run equilibrium: Price = AR = MR = MC = AC, and the firm produces at the minimum point of its average cost curve (most efficient output).

(b) Public transport system in Tamil Nadu

1. Road transport: Tamil Nadu has an extensive state-run bus network through the Tamil Nadu State Transport Corporation (TNSTC), the State Express Transport Corporation (SETC) for long-distance routes, and the Metropolitan Transport Corporation (MTC) for Chennai city. The state has a high road density connecting towns and villages. …