Imagine a market where there is perfect competition between two or more companie
ID: 1200484 • Letter: I
Question
Imagine a market where there is perfect competition between two or more companies, such as a fish market where vendors offer the same products at the same price or online ticket auctions like StubHub. In this market there are four key elements to perfect competition: a large number of buyers and sellers no barriers to entry or exit perfect mobility for customers choosing products homogenous products In a one-page (250-word) document, answer the following questions using the information provided in the scenario in Step 1: Explain how output, price, and profit are determined in your perfectly competitive market in the long run. How does that lead to efficiency? How could changes in technology affect the market? How could an increase in demand affect the market? What are the effects of new businesses entering the market? What are the effects of businesses leaving the market? When you have completed your assignment, save a copy for yourself in an easily accessible place and submit a copy to your instructor.Explanation / Answer
Perfect competition generally prevails under these conditions:
1) Large number of firms producing and selling a product
2) product of all the firms is homogenous
3) Seller and buyer have information about the price in the market
4) Entry and exit is easy for all firms.
From the pic we can see step 1 shows the prevailing conditions for a perfect competitive market.
Now , Let me answer the questions in the step 2
Important point to be considered is whether this perfect competition exists in short run or long run? See if a firm is coming into the market, it has to setup its plant and it has to group up essential things for marketing the product such that it is not possible to happen in short run so it has to long run.
a firm under perfect competition is price-taker and output-adjuster
From the above line we can say. under perfect competition firm will take the price of the product as given in the market and adjusts its output to earn maximum profit.
Homogeneous is just an idea. We don't see all smart phones as same . we have some concerns while buying a smart phone . though all are identically (smartphones) our view point will vary from product seller from seller.
Now the efficiency of the product production will depend on the consumer view point . don't you agree?
Any change in technology is good for the product unless the view point of the consumer is negative. the price fluctuates as per the consumer viewpoint for sure.
Sometimes demand for a product is more than usual. Because few firms are out of market or few firm have reduced their production by keeping the profits in mind. At that point the prices may rise than usual and this will be accepted by the user.
Firms going out of the market or entering the market may not affect the price that much because it is like a drop in the ocean. But there are few parameters like brand and consumer satisfaction that may change the consumer viewpoint, output, price etc.,
With this i have covered all the points in the step 2 . understand the above explanation and get back to us if you have any concerns.
Questions are always welcome :)
Happy learning!