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Perfect Competition and Food Industry - Case Study Example

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The "Perfect Competition, Food Industry" paper analyzes the position of the fast-food industry from the point of view of perfect competition. The company chosen for analysis is McDonald’s. McDonald’s has a long history of being the leader in the fast-food industry serving quality food products…
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Perfect Competition and Food Industry
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Download file to see previous pages A perfectly competitive market is characterized by certain features which makes it quite distinct in making competitive analyses of a firm or industry. Firstly, it must be taken into account that a perfectly competitive market is characterized by a large number of buyers and suppliers. Moreover, the firms present in a competitive market are found to produce identical products, which act as substitutes from the consumer’s point of view.  The consumers have an added advantage in a competitive market scenario in getting ready information about the prices of the products that each firm produces which helps them to decide on the purchase. In regards to the accessibility to resources the firms in a competitive market scenario share equal opportunity to optimally use such for development of its technology and production processes. The market being perfectly competitive becomes an open market for easy entry and exit of newer firms and suppliers which in the long run affects the profitability of the firm. (Perfect Competition-The Economics of Competitive Markets, n.d.). 

The price set by industries in a competitive market situation in a short-run situation depends on the interaction of the market demand and market supply. The market price obtained by the intersection of market demand (MD) and market supply (MS) curves is found to be constant for the total number of units sold by the individual firms. Thus, it becomes the prerogative of the different firms to set their prices depending on the market price (P) obtained. Moreover, the market price being homogeneous to the number of units sold also qualifies the Average Revenue (AR) of the different firms to become equal to the Marginal Revenue (MR) of theirs in the industry. The profit of the firm is decided at the point where the Marginal Revenue of the firm equates the Marginal Cost. This profit obtained is known as the normal profit of the firm or industry. It is the optimal profit required by a firm for subsistence in the industry. ...Download file to see next pages Read More
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