1. C an you think of any undesirable aspects of pure competition? From the consu
ID: 1176660 • Letter: 1
Question
1. Can you think of any undesirable aspects of pure competition? From the consumer%u2019s standpoint? From the producer%u2019s standpoint?
2. What do you think are the pluses (advantages) and minuses (disadvantages) when firms have market power? Be sure to explain your answer from a consumer and a firm%u2019s point of view.
You have seen the ads of CK, RL, got milk, and Idaho Potato. Would it make sense for a firm in pure competition to advertise? What about a trade association representing the members of a purely competitive industry, an association of potato farmers or example. Would advertising make sense for such an association? Why might an individual farmer choose not to join this association (and its ad campaign)?
Given what you learned about the sources of market power, would it make sense for a price searcher firm to advertise? Can "product differentiation" be based on consumer perception as opposed to real differences? How, and can you give an example?
Why would a firm continue to operate even though it is incurring a loss? When should it <emshut down? What is the difference between shutting down and leaving the industry?
Explanation / Answer
A) in pure competition production cost is high as compare to monopoly because in natural monopoly since there is only one producer the cost of production is very less and from producer point of view ,the profit is minimal in pure competition as compare to other of competition
B) From consumer point of view if a firm has a market power then the firm can charge as much as it want therefore from the consumer point of view it will always cause harm to them if the firm has market power
from firm point of view they can charge more and make more profit if they have more market power
C) In pure competition there is no sense of any advertisement because all the producer have same product and they all are charging the same price for that.But in real life the market is not perfectly competitive so that's why the advetizemt of the speciifed product is given.Farmers not join this because they have to sell their product to whole seller not to the general public. So to sell the product to whole seller they don' need any advertizement
D) No it didn't make sense to advertize about it's source of market power because then other firm will also adopt it and firm will no longer enjoy market power .Yes product diffrentialtion can be based on consumers choice.
E) Firm should continue to operate in loss because they are facing this loss problem in short run and in long run they will start marking the profit.
when price is greater than AFC and less than AVC it should operate in short run
and when price falls below AFC it shold leave the industry
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