Perfect Competition in Marketing Free Essay Example

The spectrum of market structures varies diversely from extremely competitive markets where there are a large number of buyers and sellers, each of whom having little or no power to modify the marketplace price to a circumstance of pure monopoly where a market or an industry includes one single provider who delights in substantial control over the marketplace cost, unless specific limitations are put straight by the federal government. A market structure such as the Chicken Meat Industry can be considered as “Perfect Competitors (PC)” as it fulfills the following mentioned presumptions:

1. There are lots of manufacturers in the economy as pointed out in the question. 2. Each individual company in the market is a Rate Taker- the firms can not manage the rate of chicken being sold in the market rather they have to simply accept the designated going market rate as the cost of their product. This occurs due to two major characteristics of Perfect Competitors: a. As there are a great deal of suppliers, each of them has a relatively little share of the total market.

As a result, these specific firms are unable to affect price by straight causing a change in its own supply since by presumption, each company is little in size b. Due to the huge competitors dealt with by each firm, no single company can increase the price that it charges above the price charged by the other firms in the market without losing service caused by a large substitution result far from that firm

3. All firms produce similar products, as in the case of Chicken Meat Market where the product i.e. chicken is homogenous. The qualities of chicken do not differ much from supplier to supplier as a result they are replacements for each other. 4. Purchasers are completely familiar with the nature and quality of chicken being sold to them along with being well informed about the cost being charged by each seller.

5. All firms, present and future, are assumed to have equal access to all factors of production as well as any advancement in technology in the production process. 6. The chicken meat industry is characterized by freedom of entry and exit. There are no barriers to entry or exit of firms in long run as a result the present the market will always be open to competition from new entrants. 7. “No externalities in production and consumption so that there is no divergence between private and social costs and benefits”. (tutor2u.net) Market Analysis

Short Run We know that Economic Profit is the difference between the Total Revenue (TR) and Total Cost (TC) where TC consists of both explicit and implicit costs. As Opportunity costs are the next best 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. (investopedia.com) In the short run the equilibrium market price, P1 is determined by the interaction between market demand and supply.

This price is taken by each of the firms as their selling price which in turn is constant for each unit sold. Therefore, the AR curve also becomes the Marginal Revenue curve (MR). We know, a firm maximizes profits when marginal revenue = 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 greater than the Average Total Cost (P>AC), the firm will make positive economic profit as indicated by the shaded area below.

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