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Micro Economics - Competition - Essay Example

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Name Class Year: Summer 2013 ECO 202-001 Topic: Short-Run Decisions and Long Run Adjustments of Firms Facing Competition Abstract Competition is a factor that organizations operating in the perfect market cannot avoid. The main objective of every firm is profit maximization…
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Micro Economics - Competition
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Download file to see previous pages However, not all situations can the management plan on how to counter the competitors. In most cases, these situations arise due to unavoidable circumstances facing an organization. Whenever such situations arise, an organization’s management has to take drastic measures of solving the problem. How firms solve the problem of competition in the two scenarios forms the main discussion of this paper. Short-Run Decisions and Long Run Adjustments of Firms Facing Competition Introduction Competition occurs in perfect market structures where firms operate in a perfectly competitive market structure. In perfect competition, many small firms involved in the production of identical products with perfect access to resources and knowledge characterize the market structure. Firms operating in a perfectly competitive market structure face a horizontal and perfectly elastic and demand curve, a situation where marginal revenues are equal to average revenue. Characteristics of perfectly competitive markets include perfect knowledge, freedom of entry and exit of firms, production of homogenous and identical units of output and many firms in operation. The structuring of a perfect market does not give an opportunity to a single firm to either influence the market price or market conditions, there are no governmental regulations and the assumption there is no existence of externalities. Body Faced with the problem of competition, organizations have to device ways and means of preserving their relevance in the market. Various factors affect the relevance of organizations in the industry they operate. Jain and Khanna (198) assert that quality and the popularity of an organization’s products among the customers determine the market share of that company in the market it operates. Competition indirectly acts as a quality controller. As companies increase their fight for a bigger cake in the entire market, they apply a number of measures. Firstly, companies increase their focus on the quality of products provided to the market while at the same time strives to offer the best prices in the market. Pricing is not an influential factor as high-end markets have indicated. Quality is the biggest factor influencing the market dynamics and purchasing behaviours of customers. Compromising quality of products adversely effects on the customers base of a company. Companies known to high quality products and services are associated with large market shares and subsequently report high revenues and profits. While laying down strategies for winning their competition, organizations apply a number of means and ways. Although every organization uses unique strategies in the market geared towards increasing its revenue sales, there are similar steps that organizations use to achieve these results. Either, an organization can opt for long term or short-term competition mitigation factors. While long-term plans needs a solid strategic plan and implementation schedule, short term decisions could be spontaneous and reactive. Reaction is a situation where a company facing high competition from other firms operating in the same industry takes drastic measures of countering that competition. Mainly, the management as measures of last result takes such measures. However, the management of an organization should be adequately prepared to counter any in eventualities whenever they occur in their operations. Whenever ...Download file to see next pagesRead More
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