majnoo (2) - 1 Question 3 Perfect competition Perfect...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Question 3 Perfect competition Perfect competition is where economic forces operate freely . The requirements of a perfect competitive market are: 1. Large number of sellers and buyers in the market. Both buyers and sellers are price takers. Large number of firms. Any firm output is small when compared to total market. 2. Identical products. One firm’s product is same as other firm’s product. They are indistinguishable. 3. Act independently 4. Well informed consumer. The information like price, technology, all business and product related information is open and transparent. 5. Easy entry into market. There are no barriers for entry like government restrictions are legalization controlling entry or technology limitations. Market demand and supply curves in relation to the average 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Marginal cost curve is the firms supply curve. Initially marginal cost falls and then rises. For profit maximization, the firm should produce where marginal cost equal to marginal revenue. Contrast of oligopoly with perfect competition Price 5 4 3 2 1 100 200 300 Quantity Market supply Market demand 100 200 300 Quantity 5 4 3 2 1 Individual firm Demand Price 5 4 3 2 1 100 200 300 Quantity Price Marginal cost 2
Background image of page 2
In an oligopoly, there are only a few firms operate. This select group of firms has control over the price and has high barriers to entry. The products that the oligopoly firms produce are often nearly identical and, therefore, the companies, which are competing for market share, are interdependent as a result of market forces. The firms are interdependent and group is monopolistic in nature. Perfect competition is characterized by many buyers and sellers, many products that are similar in nature and, as a result, many substitutes. Perfect competition means there are few, if any, barriers to entry for new companies, and prices are determined by supply and demand. Thus, producers in a perfect competitive market are subject to the prices determined by the market and do not have any leverage. The perfect competition is market driven and theoretical in nature where as oligopoly is a
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 7

majnoo (2) - 1 Question 3 Perfect competition Perfect...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online