Imagine a market where there is perfect competition between two or more companie
ID: 448392 • 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
1)
A perfectly viable market is a imaginary market where competition is at its greatest possible level. Neo-classical economists disagreed that perfect competition would produce the greatest possible outcomes for customers, and the public
The firm that takes its price from the industry and it is referred to as a price taker. The industry is collected of all firms in the industry and the market price is where market demand is equal to market supply. Each firm must indict this price and cannot deviate from it.
Conversely, in the long run companies are attracted into the industry if the present companies are making super normal profits. This is because there are no obstruction to entry and because there is perfect knowledge. The consequence of this entry into the industry is to move the industry supply curve to the right, which takes down price until the point where all super-normal profits are exhausted. If the firms are making losses then they will go away from the market as there are no exit barriers, and this will move the industry supply to the left, which increases price and enables those left in the market to draw normal profits.
2)
As there is healthy and perfect completion in a perfect market, so, pricing in the market is fair, as there is scope for the demand and market for the production of any type of product, there is need for continuous improvement in the production process in order to survive in the long run and to face competition from the markets, that leads efficiency in production process and give the company an edge over its competitors.
3)
Changes in the technology will affect the markets, as there is technology advancement that lead to produce the products at cheaper rates with limited labor force and with higher efficiency and that leads to price the product at lower rates and introducing products that are supplemental to the existing products, so technology changes has its impact on the market, as it disturbs the market equilibrium and competition
4)
Increase in demand for the particular product will give the producer to price at higher rates than the current prices, as there is higher pricing and it will disturb the market competition.
5)
If there are new entrants then there is increase in competition and customers have a chance of access to new products and at reasonable prices and customers will have the power to bargain due to availability of vast number of sellers and have an access to supplementary products, so, it disturbs the market equilibrium.
6)
If there is exit of current business participants then there is reduction in competition.