Question

In certain industries, firms buy their most important inputs in markets that are close to perfectly competitive and sell their output in imperfectly competitive markets. Cite as many examples as you can of these types of businesses. Explain why the profits of such firms tend to increase when there is an excess supply of the inputs they use in their production process.

Answer 1

In this case, certain industries or firms buy their most important inputs in the market that are close to perfectly competitive and sell their output in a perfectly competitive market.
The profit of such firms tend to increase when there is an excess supply of the inputs used in the production process because when industries are going to purchase the inputs and sell it in an imperfectly competitive market so the inputs generated the profit because in the perfectly competitive market there is a fixed price so there is no fluctuation of prices in the perfectly competitive market but in a perfectly competitive market is totally depends on the forces of demand and supply it means the prices depend on various factors like the demand of the commodity the availability of the product in the market and the competitor's attitude towards the market so therefore then a fixed price commodity is available in the market then it is a good chance for the seller to get the advantage of the fluctuations of the markets and to generate huge profit.
There are various examples of this type of system.
An example is in agro-based industries where the prices of Agricultural goods are generally based on the perfect competition market but when the goods are going to sale in the perfectly competitive market for their goods worked as intermediate goods for the industrial sector then there is price difference which makes the revenue or profit high.
Other examples in the case of one industries supplier to various firm and this one's are selling this goes to another retailer then because of the huge difference in the pricing the revenue condition generated.