Question

Compare and Contrast the decisions of a competitive firm and a platform based firm.  

Answer 1

Comparison and Contrast the decisions of a competitive firm and a platform based firm:  

A perfectly competitive firm has only one major decision to make—namely, what quantity to produce. To understand why this is so, consider a different way of writing out the basic definition of profit:

Since a perfectly competitive firm must accept the price for its output as determined by the product’s market demand and supply, it cannot choose the price it charges. This is already determined in the profit equation, and so the perfectly competitive firm can sell any number of units at exactly the same price. It implies that the firm faces a perfectly elastic demand curve for its product: buyers are willing to buy any number of units of output from the firm at the market price.

When the perfectly competitive firm chooses what quantity to produce, then this quantity—along with the prices prevailing in the market for output and inputs—will determine the firm’s total revenue, total costs, and ultimately, level of profits.

Determining the Highest Profit by Comparing Total Revenue and Total Cost :

• A perfectly competitive firm can sell as large a quantity as it wishes, as long as it accepts the prevailing market price. Total revenue is going to increase as the firm sells more, depending on the price of the product and the number of units sold. If you increase the number of units sold at a given price, then total revenue will increase. If the price of the product increases for every unit sold, then total revenue also increases.
• As an example;of how a perfectly competitive firm decides what quantity to produce, consider the case of a small farmer who produces raspberries and sells them frozen for $4 per pack. Sales of one pack of raspberries will bring in $4, two packs will be $8, three packs will be $12, and so on. If, for example, the price of frozen raspberries doubles to $8 per pack, then sales of one pack of raspberries will be $8, two packs will be $16, three packs will be $24, and so on.

Comparing Marginal Revenue and Marginal Costs :

• Firms often do not have the necessary data they need to draw a complete total cost curve for all levels of production. They cannot be sure of what total costs would look like if they, say, doubled production or cut production in half, because they have not tried it. Instead, firms experiment. They produce a slightly greater or lower quantity and observe how profits are affected. In economic terms, this practical approach to maximizing profits means looking at how changes in production affect marginal revenue and marginal cost.

The Competitive Advantage of Nations:

• A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade. Companies gain advantage against the world’s best competitors because of pressure and challenge. They benefit from having strong domestic rivals, aggressive home-based suppliers, and demanding local customers.
• In a world of increasingly global competition, nations have become more, not less, important. As the basis of competition has shifted more and more to the creation and assimilation of knowledge, the role of the nation has grown. Competitive advantage is created and sustained through a highly localized process. Differences in national values, culture, economic structures, institutions, and histories all contribute to competitive success. There are striking differences in the patterns of competitiveness in every country; no nation can or will be competitive in every or even most industries. Ultimately, nations succeed in particular industries because their home environment is the most forward-looking, dynamic, and challenging.

How Companies Succeed in International Markets:

• Around the world, companies that have achieved international leadership employ strategies that differ from each other in every respect. But while every successful company will employ its own particular strategy, the underlying mode of operation—the character and trajectory of all successful companies—is fundamentally the same.
• Companies achieve competitive advantage through acts of innovation. They approach innovation in its broadest sense, including both new technologies and new ways of doing things. They perceive a new basis for competing or find better means for competing in old ways. Innovation can be manifested in a new product design, a new production process, a new marketing approach, or a new way of conducting training. Much innovation is mundane and incremental, depending more on a cumulation of small insights and advances than on a single, major technological breakthrough. It often involves ideas that are not even “new”—ideas that have been around, but never vigorously pursued. It always involves investments in skill and knowledge, as well as in physical assets and brand reputations.

Purely competitive firms does not have any control over price as there are many sellers selling the same product

Monoplolistic firm has some control on price due to distinctive features of product offered.

platform business model:

The platform business model differs from the traditional pipe, or linear business model, in which a company relies on its own resources to deliver a product or service to customers. Some common characteristics of a platform business model include:

• Allowing users to both create and consume value. YouTube is a good example of this trait, as users are able to view video content and comment on it, as well as produce video content for others to consume.
• Providing open APIs that give external developers the ability to expand the platform's functionality by allowing various application programs to interact and share data.
• Creating an ecosystem that encourages registered users and content consumers to add more value to the platform by repeatedly creating more content which will, in turn, attract additional content creators and consumers.