Question

Describe the economic concepts of perfect competition, imperfect markets and profits

Answer 1

Perfect competition is also called as a Pure competition. It this type of market structure firms sells the same type of product or an identical product. The products and commodities are homogeneous or similar in kind. All The firms or industries are price takers. There are a great and huge number of buyers and sellers. Buyers are known of all the information on the product being sold and also the prices which that are charged by the firms. All the resources including have perfectly mobility. There are big number of sellers and buyers. It has identical and huge markets. There is no government involvement or intervention. The firm can enter and exit the market at any time they want. There is free entry and free exit of firms or industry. The transportation costs are low-priced and competent. Perfect competition is a hypothetical case in which it cannot possibly exist in a market. Perfect competition is used as a foundation to compare with other types of market structures. No market is a perfect competition in India. A firm can earn normal profits but no market or firm can earn super-normal profits. It takes place only in the textbooks and not in the actual or real world.

Imperfect competition or market is a type of market that shows only some and not all features of the markets that are competitive. In this competitive market there are a lot of sellers, producers and buyers, and all are selling heterogeneous or dissimilar goods and products. Imperfect competition can be called as the real world competition in the market. Some of the examples of imperfect competitions or markets are oligopoly market and monopolistic competition. In this type of market, the seller possesses and benefits from the opulence of affecting the price in order to earn high profits. If a seller sells a good in the market which is non identical, then the seller can elevate the prices of that good and earn more and higher profits. Higher profits attract the other sellers to enter the market and the sellers, who are incur losses, leave the market.

An economic profit is the difference between the revenue which is received from the transaction or deal of an output and the opportunity cost of the inputs that is used. When we calculate economic profit, opportunity costs are subtracted from the revenues which are earned. Opportunity costs are the substitute returns past by using the inputs that are chosen, and due to which, a person can have a noteworthy profit with a little to no economic profit.