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Consider a perfectly competitive market in long-run equilibrium where all firms operate under the same cost conditions. Suppose - Essay Example

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Macro and Micro Economics [University] [Instructor Name] Question B: Consider a perfectly competitive market in long-run equilibrium where all firms operate under the same cost conditions. Suppose a new technology becomes available which reduces marginal production costs…
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Consider a perfectly competitive market in long-run equilibrium where all firms operate under the same cost conditions. Suppose
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Consider a perfectly competitive market in long-run equilibrium where all firms operate under the same cost conditions. Suppose

Download file to see previous pages... (70 marks) Market is a place where buyers and sellers meet each other for fulfilling needs and generating profits. The form of market is of great importance in business and economics as it is responsible for defining its overall characteristics including the numbers and categories of suppliers, the variable or identical nature of the products offered by different firms operating in the same or different industries, is the market exhaustive enough or it allows the entry of some new competitor and most importantly the nature of the competition; is it a perfect competition or not? The major decisions of different firms revolve around these basic features which lead to the analysis of offering price and the number of inventory to be produced (McEachern, 2011). As far as perfectly competitive market is concerned then it has the following features: There is relatively quite a small number of sellers and buyers as compared to the needs of the customers and the overall market size. In this situation one firm has a very low effect over the market price and trends. As a result not a single firm can practice complete control over the cost and price ratios. The perfectly competitive market deals in identical products i.e. all the firms in the market sale the same product with minor or negligible variations. The customer choices are therefore independent of the quality of the product and other characteristics of the products excluding the price factor. The market forces such as demand and supply work freely to decide the equilibrium price and equilibrium quantity, in addition to this the government policies affect the price and quantity ratios through taxes and subsidiaries. There is a free entry for all the firms in the market. They can leave or enter the market in any geographical location without facing any obstacles in their way. They can also apply whatever factors of production they want to with whatever variations and manipulations. The market offers complete and comprehendible information about the products and services. Therefore the firms are aware of the quality and characteristics of their products which leads them towards better performance. It is an ideal market to work in as it ensures the profits and flexibility of operations. In addition to free will related to entrance and exit hence giving numerous advantages to the consumers and sellers both (Dodd & Hasek, 1952). Now let’s consider the example of Rice market where the competition is perfect in nature. All the firms operating in this particular market are having the same costing conditions which are expected to remain at the equilibrium stage in the long run as well. The Automation Technology has become available to few of the firms in the market. This technology is pretty much useful for the production and packaging purposes as it lowers the marginal cost per unit and therefore contributes in increasing the profit margin of the seller without the need of increasing the price of the commodity rather decreasing the cost of the product. The usage of the Automation Technology will have some short run and long run effects over the rice market whereas the factor prices and the demand of the product remain same. This will disturb the equilibrium state of the perfect competition. Application of some new technology is always beneficial for both the industry and the individual firms operating in the market as it is more effective and efficient than the previous ...Download file to see next pagesRead More
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