2 In a perfectly competitive market, who benefits from an event that lowers production costs for firms? Answer In a perfect competitive market, no one would benefit from the event that lowers the production of firms because of free entry and free exit in the competitive market. In perfect competition no one has the ability to affect the price. Both sides takes the market price as given and the market. Clearing price is the one at which there is neither excess supply nor excess demand i.e. suppliers will keep producing as long as they can sell the goods for a price that exceeds their cost of making one more (marginal cost of production). Buyers will go on purchasing as long as the satisfaction they derive from consuming is greater than …show more content…
How would the $100 per unit tax affect the firms profit per day? P=TR-TC P= (10*400)-(100*10)=4000-1000=$3000 Reduction is profit is
6. In a monopolistic competition industry, if one firm appreciably increased its price from the existing equilibrium price, which of the following outcomes would most likely ensue?
could then result in perfect competition in the supply of products. Firms would be price
Also according to Investopedia (2013), “These types of firms are inefficient; it is usually the case that the costs of regulating prices for every product sold far exceed the benefits of such regulation. However, it would not have to regulate every product and every firm just the most important ones.” A firm could be said to be marginally inefficient because it produces at an output where average total cost is not a minimum. This type of market is a productively inefficient market structure because marginal cost is less than price in the long-run. Markets are also inefficient as the price given is higher than marginal cost.
Evaluate the view that, because price discrimination enables firms to make more profit, firms, but not consumers, benefit from price discrimination
n perfectly competitive industries, there are such a large number of firms, each producing such a small proportion of the industry’s output, each firm cannot, by its own independent action, affect the supply or the price. The degree to which firms can influence the price of their product through their own strategy depends upon market structure. Perfectly competitive market structure is a market situation where there arelarge number firms producing a homogeneous productand there are large numbers of byers demanding the same products. In such a market every firm considers that it can sell any amount of output at the prevailing market price.Similarly, there is no restriction for the byers to purchase any amount from the
The trade flows (both exports and imports) decline thus leading to higher prices and reduction of customer marginal benefit. The profit-seeking firms choose to produce where the price is equivalent to the marginal cost of the last produced unit and when government measures affect their decision to produce. The interventions that lower the marginal costs of production such as subsidies will lead to increase in production (Kerr and Gaisford 2007).
Competition going as per the theory causes commercial firms to develop new products, services and technologies, which would offer consumers greater choices and better products. The greater selection typically causes lower prices for the products, compared to what the price would be if there was no competition or little
Different companies operate under different business models and one can see that under some market forms, firms have no control over price, in others they have the power to adjust price in a way that adds to its profits. There are different market structures with perfect competition at one end and pure monopoly at the other. In between are different forms called monopolistic competition and oligopoly that share some of the characteristics of both perfect competition and a monopoly competitive structure (Colander, 2013, Chapter 13). Perfect competition exists when products are homogeneous, and there are many firms too small to have any influence on the market price. These types of businesses can easily enter and exit the industry. A situation where even one producer can affect the price of a good by increasing or withholding output is called imperfect competition. Monopolistic competition exists when many producers of slightly differentiated products are able to sell them at well above their marginal cost. The core of the argument for competition is that as long as competition exists in markets no one producer or group of producers can afford to abuse power by charging too much or by selling bogus goods for fear that consumers might turn away from them to buy from other producers. In line with that argument one of the government’s tasks is to keep competition alive and functioning. A
Let us consider a monopolistically competitive market in a closed economy. We assume the demand and cost functions to be symmetric for all the firms. The competition the firms face is temperate: Firstly and because and because of internal economies of scale, the firms are in limited number. Secondly, because they produce relatively different products and because the consumer's preferences may not change for a slight price difference, they can adopt in some extent monopoly pricing, which results in a limited production and an increased price. Thus there is a trade-off between profit-maximising behaviour which can result from tacit arrangements, and the preservation of market power. Two relationships determine the number of firms and the price they charge in a
Finally, in non-competitive markets, industrial policy intervenes to reach equilibria that the market would not otherwise be able to obtain. There are cases in which the existence of a monopoly is justified by efficiency. Sometimes natural monopolies are justified by some structural conditions that guarantee the efficiency of the market only if a single producer meets all the demand. There are also situations in which the natural monopoly is justified by the lack of a particular factor of production.
The firms’ competitive edge in terms of prices increases. Subsidies enables firms to cover their costs without making their products unaffordable (Anon: 2014).