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Jose Rizal University College Division School Year 2020-2021 1 Semester

Perfect competition is characterized by many small firms with minimal influence on market prices. While firms do not coordinate pricing, they also do not need to use pricing tactics because buyers have many similar alternatives. Prices remain stable as individual firms have negligible impact on overall supply. A key aspect of perfect competition is that firms are price-takers rather than price-makers and cannot influence market prices through adjusting production levels. Costs are also inelastic, meaning equilibrium prices cannot be reached and firms may earn economic losses even while maximizing profits, suggesting such firms should exit the market.

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36 views2 pages

Jose Rizal University College Division School Year 2020-2021 1 Semester

Perfect competition is characterized by many small firms with minimal influence on market prices. While firms do not coordinate pricing, they also do not need to use pricing tactics because buyers have many similar alternatives. Prices remain stable as individual firms have negligible impact on overall supply. A key aspect of perfect competition is that firms are price-takers rather than price-makers and cannot influence market prices through adjusting production levels. Costs are also inelastic, meaning equilibrium prices cannot be reached and firms may earn economic losses even while maximizing profits, suggesting such firms should exit the market.

Uploaded by

MarkJoven Bergantin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Jose Rizal University

College Division
School year 2020-2021
1st semester

“Assignment 7”

In partial fulfilment for the subject requirements of


ECO C205: MANAGERIAL ECONOMICS

Submitted By:

Oida Jerome L
BSA 303-A

Submitted To:

Dr. Michael Angelo Battung


October 14, 2020
Perfect competition, is characterized by a large number of more or less equally large firms, and
having a perfectly competitive industry does not reflect a drastic change in the market price
since, due to the lack of barriers, the contribution of each firm to total production is minimal,
because there are many firms easily entering and leaving the market. This argument is incorrect
because price competition is not an aspect of perfect competition. It's because In perfect
competition, they do not worry about the selling tactics of other organizations, since they just
work on opportunities to increase their own profits, since this is perfect competition,
businesses do not need to set rates to draw consumers, since there are many markets to select
from, and these buyers and sellers have access to perfect product knowledge.

Comprehensively competitive companies lack market power and are thus defined as price
drivers because they are unable to control the selling price of their item by changing the level of
production. Prices remain stable because the change in the production of the industry does not
represent a significant change in the price of the item due to the loss of purchasing control. A
perfectly competitive business should be able to deliver as many of its products or services at
the prevailing selling price as any other similar company. As every other equivalent
organization, when it has the perfect mobility of its capital and the factors of production. In the
other hand, as far as price makers are concerned, this sort of business has the ability to shift its
prices by changing its amount of production under which it cannot sell as many of its products
or services when the competition is not fully competitive.

Perfectly competitive industries have costs that are inelastic to production, because if costs are
inelastic, marginal profits are negative and overall profits are falling. Equilibrium price and
quantity can never be reached because there is no equilibrium because there is no pricing force
that determines the ideal price and quantity on the pricing. Similar to the demand curve of the
linear market, when demand is elastic, marginal revenue is positive and overall revenue rises, If
the price elasticity of demand is unit, marginal revenue would be zero and total revenue would
be maximized. But a perfectly competitive equilibrium price and quantity can never be
measured along the inelastic part of the market demand curve since, if the price elasticity of
demand is inelastic, marginal revenue is negative and total revenue is diminishing.

As we learn, economic benefit varies from accounting profit because, in economic profit, it
takes into account the opportunity costs of firms, which is why, when a perfectly competitive
business earns an economic loss of profit-maximizing it implies that its economic costs, along
with the cost of opportunity, are higher than the overall income, despite having a profit-
maximizing effect.
This suggests that if the firm results in losses even when they are their best operational
environment and, not to mention, they operate in a perfectly competitive market where all is
fine then the firm can close down because it shows that they are unable to handle their capital
while being in a perfectly competitive market.

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