Perfect Competition Essay

The spectrum of foodstuff structures varies diversely from exceedingly competitive markets where there argon a declamatory number of buyers and sellers, distributively of whom having little(a) or no power to alter the market outlay to a situation of pure monopoly where a market or an perseverance consists of one single provider who enjoys considerable deem over the market price, unless specific restrictions are placed directly by the government. A market structure such as the Chicken Meat Industry apprise be deemed as Perfect Competition (PC) as it fulfills the following mentioned assumptions1. in that location are many producers in the economy as mentioned in the question. 2. item-by-itemly separate self-colored in the market is a Price Taker- the unwaveringlys cannot control the price of chicken being exchange in the market instead they work to simply accept the designated going market rate as the price of their crossing. This happens due to two major characteri stics of Perfect Competition a. As there are a large number of suppliers, each of them has a relatively small share of the overall market. As a result, these individual firms are unable to affect price by directly take about a change in its own supply because by assumption, each firm is small in size b. Due to the large competition faced by each firm, no single firm can increase the price that it charges above the price charged by the other firms in the market without losing business caused by a large substitution effect away from that firm3. All firms produce analogous goods, as in the case of Chicken Meat Industry where the product i.e. chicken is homogenous. The characteristics of chicken do not vary much from supplier to supplier as a result they are substitutes for each other. 4. Buyers are perfectly aware of the nature and quality of chicken being sold to them as well as being well informed about the price being charged by each seller.5. All firms, founder and future, are assumed to have equal access to all factors of doing as well as any advancement in engineering science in the production process. 6. The chicken meat industry is characterized by license of entry and evanesce. There are no barriers to entry or exit of firms in long run as a result the expose the market will always be open to competition from bracing entrants. 7. No externalities in production and consumption so that there is no divergence betwixt private and social costs and benefits. (tutor2u.net) Market synopsisShort Run We know that Economic Profit is the difference between the impart Revenue (TR) and Total Cost (TC) where TC consists of both overt and implicit costs. As Opportunity costs are the next outgo alternative forgone, a chicken meat supplier can have can have a significant accounting profit with little to no economic profit. In the Short Run, economic profits for individual chicken meat suppliers depend on the position of their Average Total Cost curves. (in vestopedia.com) In the short run the equilibrium market price, P1 is fit(p) by the interaction between market demand and supply.This price is interpreted by each of the firms as their selling price which in liberate is constant for each unit sold. Therefore, the AR curve also becomes the bare(a) Revenue curve (MR). We know, a firm maximizes profits when marginal taxation = marginal cost, therefore the profit-maximizing output for a given firm is Q1. The firm sells Q1 at price P1. Because the ruling market price is great than the Average Total Cost (PAC), the firm will make supportive economic profit as indicated by the shaded area below.