Question

A perfectly competitive market can only make normal profits because there are many price taker firms in the industry and absence of barriers in on entry and exit of new firms and can maximizes its profits when the marginal revenue is equal to the marginal cost. Also a perfectly competitive firm will always produce till a output where marginal revenue equals to, marginal cost and the firm can only incur profit by producing fewer than the equilibrium quantity as marginal revenue and equilibrium price are greater than marginal cost. The firm can also focus on increasing efficiency and reduce costs so that it can produce a higher level of output at the marginal cost which equals price, (Principles of Managerial Economics, n.d). Product differentiation is a marketing process that has the objective of making customers perceive the product of a specific firm as unique or superior to any other product belonging to the same group, and so creating a sense of value. Several models have been developed to analyses these two strategies, the most famous being Hotelling’s linear city model and its extension, the Salop’s circular city model, for horizontal differentiation and the Shaked-Sutton’s model for vertical differentiation. As a product becomes more differentiated and unique for consumers, it will become more difficult to compare it to other products and it will move competition with other products to non-pricing factors, (Policonomics, 2017).

What can be done differently?

Answer 1

Since in a perfectly competitive market the competition is intact among all the seller, still little modifications can be done to gain more other than price rise.

-The seller can introduce new schemes in their products

- new features in their products as in natural, herbal, special ingredients.

- Better advertisements

- Goodwill helps to attract more customers