Question

A. In terms of productive output, what must a business that competes in a "perfect competition" market do in order to try to maximize profit.

B. What are price takers, and why are firms that compete in a "perfect competition market" limited to being price takers?

C. In the real world, so-called "perfect competition" does not and cannot exist. Based on the nature and benefits of free competition, why is this reality actually a good thing?

Note: Short Answers

Answer 1

A. In terms of productive output, what must a business that competes in a "perfect competition" market do in order to try to maximize profit.

Answer: In a perfect competition market, when a business produces a greater quantity of output, its total revenue steadily rises at a constant rate determined by the given market price. Thus the firm must produce high quantity of the products it offers to the market in for maximization of profits because when it produces more, it maximizes profit as buyers are willingly to purchase any output available by the firm at the prevailing market prices

B. What are price takers, and why are firms that compete in a "perfect competition market" limited to being price takers?

Answer: Under perfect competition market a firm is a price taker because other firms can easily enter the market and produce a product that is indistinguishable from every other firm's product, thus making it impossible for the business to set its own prices.

C. In the real world, so-called "perfect competition" does not and cannot exist. Based on the nature and benefits of free competition, why is this reality actually a good thing?

Answer: The perfect competition is not conducive to rapid growth because there is not a maximum economic welfare and consumer surplus. Moreover firms will innovate if they have incentives to innovate and incentive to innovate comes from economic profits that lacks in perfect competition