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Discussion 7- economics-pricing strategies - Assignment Example

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Agricultural products e.g. wheat, corn, milk, eggs, are examples of products that participate in a pure competitive market. There is perfect competition in such markets since many firms…
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Discussion 7- economics-pricing strategies
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Pricing strategies Insert Insert DISCUSSION 7 Pure competitive market structure is an example of the four main types of market structures. Agricultural products e.g. wheat, corn, milk, eggs, are examples of products that participate in a pure competitive market. There is perfect competition in such markets since many firms and companies are producing the same products. There is a large number of firms in pure competition markets hence no particular firm can influence market prices. It is easy for firms to get in and out of such markets thus each firm is a price taker. In pure competitive markets producers and consumers are aware of the market prices. Since producers have no control over the market prices, they can only control how much they produce. For production, firms in pure competitive market evaluate both the prices for selling their goods and the cost of production. If the analysis leads to greater profit maximization margin, the firm increases its production. Firms in a competitive market maximize profits or minimize losses by evaluating marginal revenues against marginal costs (Reynolds, 2011).
Since there are many producers, each makes up a small portion of the total market. No particular producer can influence market prices. The demand curve for the various producers in pure competitive markets is completely elastic (horizontal). Producers in pure competitive markets are price takers. Such producers have the power to sell their products as much as they can produce.
If competitors change their prices in pure competitive markets, consumers are willing to switch their demands to the most competitively priced products. In such a case, cross-price elasticity increases since consumers have other available options at better offers. If one producer raises the price, demand goes to zero.
References
Reynolds, L. (2011). Basic Microeconomics. TextBook Equity, Inc. Read More
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