Question

Describe a business that is quite competitive. Which of the criteria for a perfectly competitive firm are met by this business, & which aren't? (Identical products; price taker; low economic profits)

For this business give examples (description of the cost; no dollar amount needed) of the following & explain why they're examples of this type of cost.

~Explicit fixed cost

~Explicit variable cost

~Implicit fixed cost

~Implicit variable cost

Answer 1

In perfectly competitive market there is more competitions than other market because there are large number of sellers selling homogeneous product.

Business that is quite competitive can be a farmer dealing in his agricultural product. Or any other person dealing in those agricultural products which he purchases from farmer and sell them into the market.

Criteria for perfectly competitive firm met with this firm are:-

. IDENTICAL PRODUCT

In this business the products which are from agriculture are identical as many seller sell same product.

. PRICE TAKER:-

In both business prices are set by market conditions and the customer demand.

. LOW ECONOMIC PROFITS:-

In long run perfectly competitive market earn zero profit whereas in agricultural product business there is no zero profit in long run because there will always be sale for these type of products.

EXPLICIT FIXED COST:-

business considers rent, mortgage and cost of purchasing manufacturing equipments as fixed cost.

EXPLICIT VARIABLE COST:-

It is the normal business cost that appear in the general ledger and directly affect companies profit. Example are wages, lease payment and raw material.

IMPLICIT FIXED COST:-

It includes the loss of interest, income of funds and depreciation on machinery.

IMPLICIT VARIABLE COST:-

It is the opportunity cost that is equal .to what firm must give up in order to use a factor of production for which it already owns and thus not pay rent.

PLEASE DO LIKE