+%23%23%23%23+7+Explain+why+an+individual+firm+has+no+influence+on+price+in+a+perfectlycompetitive+market.+%285+marks%298+Explain+why+perfect+mobility+of+factors+of+production+is+needed+for+a+perfectlycompetitive+market+to+operate.+%285+marks%299+Explain+why+firms+in+a+market+dominated+by+a+few+firms+can+continuallyachieve+abnormal+profits.+%285+marks%2910+Explain%2C+with+the+help+of+a+diagram%2C+how+abnormal+profits+are+%E2%80%98competed+away%E2%80%99in+a+perfectly+competitive+market.%0A
Question
+%23%23%23%23+7+Explain+why+an+individual+firm+has+no+influence+on+price+in+a+perfectlycompetitive+market.+%285+marks%298+Explain+why+perfect+mobility+of+factors+of+production+is+needed+for+a+perfectlycompetitive+market+to+operate.+%285+marks%299+Explain+why+firms+in+a+market+dominated+by+a+few+firms+can+continuallyachieve+abnormal+profits.+%285+marks%2910+Explain%2C+with+the+help+of+a+diagram%2C+how+abnormal+profits+are+%E2%80%98competed+away%E2%80%99in+a+perfectly+competitive+market.%0A
Solution
7.+In+a+perfectly+competitive+market%2C+an+individual+firm+has+no+influence+on+price+because+there+are+many+sellers+selling+identical+products.+This+means+that+buyers+can+easily+switch+from+one+seller+to+another+without+any+cost.+Therefore%2C+if+a+firm+tries+to+increase+its+price+above+the+market+price%2C+buyers+will+simply+buy+from+other+firms%2C+causing+the+firm+to+lose+all+its+customers.+This+is+why+firms+in+a+perfectly+competitive+market+are+price+takers%2C+not+price+makers.+%285+marks%29%0A%0A8.+Perfect+mobility+of+factors+of+production+is+needed+for+a+perfectly+competitive+market+to+operate+because+it+ensures+that+resources+are+allocated+efficiently.+If+factors+of+production+can+move+freely%2C+they+will+move+to+where+they+are+most+valued%2C+i.e.%2C+where+they+can+earn+the+highest+return.+This+ensures+that+no+resources+are+wasted+and+that+production+is+at+its+most+efficient.+In+addition%2C+perfect+mobility+of+factors+of+production+also+ensures+that+all+firms+have+equal+access+to+resources%2C+which+is+necessary+for+perfect+competition.+%285+marks%29%0A%0A9.+Firms+in+a+market+dominated+by+a+few+firms+can+continually+achieve+abnormal+profits+because+they+have+market+power.+This+means+they+can+influence+the+price+of+their+product%2C+either+by+restricting+output+or+by+differentiating+their+product.+In+addition%2C+these+firms+may+have+barriers+to+entry+that+prevent+new+firms+from+entering+the+market+and+competing+away+their+abnormal+profits.+These+barriers+could+be+legal+%28e.g.%2C+patents%29%2C+technological+%28e.g.%2C+high+start-up+costs%29%2C+or+strategic+%28e.g.%2C+aggressive+pricing+strategies%29.+%285+marks%29%0A%0A10.+In+a+perfectly+competitive+market%2C+abnormal+profits+are+%27competed+away%27+because+the+presence+of+abnormal+profits+attracts+new+firms+to+the+market.+As+new+firms+enter%2C+the+supply+of+the+product+increases%2C+which+drives+down+the+price.+As+the+price+falls%2C+the+abnormal+profit+decreases.+This+process+continues+until+all+abnormal+profits+are+competed+away+and+firms+are+only+earning+normal+profits.+This+can+be+illustrated+with+a+supply+and+demand+diagram%2C+where+the+entry+of+new+firms+shifts+the+supply+curve+to+the+right%2C+leading+to+a+lower+price+and+eliminating+abnormal+profits.+%285+marks%29
Similar Questions
+%23%23%23%23+7+Explain+why+an+individual+firm+has+no+influence+on+price+in+a+perfectlycompetitive+market.+%285+marks%298+Explain+why+perfect+mobility+of+factors+of+production+is+needed+for+a+perfectlycompetitive+market+to+operate.+%285+marks%299+Explain+why+firms+in+a+market+dominated+by+a+few+firms+can+continuallyachieve+abnormal+profits.+%285+marks%2910+Explain%2C+with+the+help+of+a+diagram%2C+how+abnormal+profits+are+%E2%80%98competed+away%E2%80%99in+a+perfectly+competitive+market.%0A
In perfect competition, the market is _____________________.a.almost free from competition and firms earn large profits.b.highly competitive and firms find it impossible to earn an economic profit in the long run.c.dominated by fierce advertising campaignsd.marked by firms continuously trying to change their products so that consumers prefer their product to their competitors' products
34.Which of the following factors is not a characteristic of perfect competition? A. A large number of buyers and sellers B. Well-informed buyers and sellers about product prices C. Individual firms spend a considerable amount on advertising D. No restrictions on entry into or exit from the industry
Which of the following statements apply to a perfectly competitive market
Perfect competition has all of the following characteristics EXCEPT _______________.a.well-informed buyers and sellers with respect to prices.b.a large number of buyers and sellers.c.no restrictions on entry into or exit from the industryd.considerable advertising by individual firms
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