Question

Hello I have these questions, I would like not so long answers but something that gives me a good idea about the topic.

1. What is a perfectly competitive market?
2. Why are many agricultural products in a perfectly competitive market?
3. What is a price taker?
4. What are barriers to entry in a market?
5. What is a standardized product? Give an example
6. What is a company’s market share?
7. What is free entry and exit?
8. How do you calculate a company’s total revenues?
9. What is marginal revenue?
10. What is total profit?

Answer 1

Solution:-

(1) Perfectly Competitive Market

Perfect Competition is said to prevail when there is large number of producers producing a homogenous products. The maximum output which an individual firm can produce is very small relatively to the total demand of the industry's product so that a firm cannot affect the price by varying its supply of output.

Features of perfect competition:-

1.) There is large number of firms and buyers of a product.

2.) Products of all firms are homogenous.

3.) There is freedom of new firms to enter the industry and old ones to leave it.

3.) All firms and buyers have perfect information about the prevailing market price of the product.

(2) Many agricultural products are in perfectly competitive market because farmers face competition from thousands of other farmers and they are also selling identical products . And buyers and sellers have perfect information about the prevailing price of the product. The market is characterised by free entry and exit and producers are price taker.

The above are the characteristics of perfect competition and agricultural market holds the above characteristics therefore many agricultural products are in perfectly competitive market.

(3) Price taker

In the perfect competition firms are price taker it means that they have no influence over the price.

The existence of large numbers of firms ensures that an individual firm exercises no influence over the price of the product. The output of an individual firm constitutes a very small fraction of the total output so that any increase or decrease in output by an individual firm has a negligible effect on total supply of the product. As a result a single firm is not in a position to influence the price of the product by increasing or decreasing its output.

(4) Barriers to entry in the market

Barriers to entry are the obstacles that make it difficult for the new firms to enter into the market.

There are two types of barriers technological and legal.

A technological barrier to entry arises when the potential firms do not have the required knowledge or access to inputs as the existing firms. A legal barrier arises when the government imposes restrictions on the entry of new firms to avoid harmful competition among firms.