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COSTS OF PRODUCTION - Essay Example

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The investor has to establish a reliable source of capital to ensure that the efforts for developing the business do not go to waste. Basically, all the expenses that…
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COSTS OF PRODUCTION
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Download file to see previous pages To understand the concept indivisibility of some factor inputs, we can look at some examples from the Tropical Smoothie café. Some of the indivisible inputs include the business idea, entrepreneurial skills, and the skills of individual workers among others. In this case, it is clear that not all inputs all divisible. Therefore, the indivisible inputs should be utilized efficiently to avoid wastage.
There exist several characteristics or features of a competitive market structure. For instance, there are no barriers to entry in the market. In this regard, firms are free to penetrate or exit the market on their own pleasure. As a result, there are many small firms that serve the entire market such that no firm has sufficient power to control the market (Dwivedi, 2006). Therefore, the price of commodities in such a market are determined by the forces of demand and supply. In essence, the firms have to set prices that are in line with the existing market price. Generally, it can be argued that the firms in such a market are price takers.
Van & Camesasca (2001) state that a perfectively competitive firm offers identical products to that of competitors. In this regard, the consumers can switch from one firm to the other since all products are close substitutes. Actually, the products serve the same customers’ needs and wants and, therefore, firms are forced to devise unique means of surviving the competition. In essence, the homogeneity of products in perfectively competitive markets creates a cut-throat contest among the firms in the competition.
Perfectly competitive firms operate with resources that are easily transferable from one industry to another. In essence, the firms are flexible to changes and, therefore, can fit in more than one industry. Studies have shown that most perfectly competitive firms do not operate in one industry for their entire life of ...Download file to see next pagesRead More
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