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Author Question: Why do firms in perfectly competitive markets have no control over the price of their products? ... (Read 108 times)

tth

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on: Jun 29, 2018
Why do firms in perfectly competitive markets have no control over the price of their products?
 
  What will be an ideal response?

Question 2

Compare and contrast the effect of perfect competition to the effect of perfect price discrimination on: a) efficiency. b) consumer surplus. c) economic profit in the long run.
 
  What will be an ideal response?


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zhanghao

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Reply #1 on: Jun 29, 2018
Answer to Question 1

Firms in competitive markets are price takers, because all firms in the market
produce identical products and each firm is small relative to the size of the market. Raising prices above this price would result in losing all its sales because consumers perceive the products to be identical. Setting a price below this level would not increase the number of consumers but only result in a decline in revenue.

Answer to Question 2

a) Both perfect competition and perfect price discrimination create efficiency.
b) Consumers receive consumer surplus with perfect competition. However, there is no consumer surplus with perfect price discrimination.
c) Perfectly competitive firms cannot make an economic profit in the long run. A perfectly price discriminating monopoly makes the maximum amount of economic profit.


tth

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Reply 2 on: Jun 29, 2018
YES! Correct, THANKS for helping me on my review

kishoreddi

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Reply 3 on: Yesterday
Thanks for the timely response, appreciate it

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