write a two- to three-page paper (600 words minimum) examining perfect competiti
ID: 1193700 • Letter: W
Question
write a two- to three-page paper (600 words minimum) examining perfect competition in the value-menu fast-food restaurant business. Address the following questions in your paper:
What are the characteristics of perfect competition? Why does this type of fast-food restaurant tend to display characteristics of perfect competition?
Imagine you are running a firm with the characteristics of a perfectly competitive firm. Describe how your firm would maximize its short-run profits.
Why might firms in perfect competition choose to be open on Monday, typically the slowest day of the week, when their revenues do not seem to be sufficient to warrant doing so?
What are the long-run benefits of running a firm in perfect competition?
Under what conditions would your value-menu fast-food restaurant decide to be open on Mondays, and when would it decide not to be open on Mondays? When is losing money on Mondays still a good business decision?
Explain how your experience as a manager would change if the value-menu fast-food restaurant you were in charge of operated under a different market structure?monopolistic competition, oligopoly, and monopoly. For example, in each case, how would you decide what price to charge? What would your profits look like? Would consumers be better off in terms of welfare, when you compare a firm in monopolistic competition, oligopoly, and monopoly to one in perfect competition?
Two sources in addition to your textbook are required for this paper.
Explanation / Answer
In the perfect Competition market condition is that no individual firm or seller is able to influence the prices of a commodity. The price is determined by the forces of demand and supply of the industry as a whole and the individual firms has to accept the prices set by the industry and try to adjust its output to the ruling market prices so that the average revenue is equal to the marginal revenue. In the perfect competitive market a firm’s marginal revenue is equal to the prices. From the characteristics’ of the firm in a perfect competitive market we see that the demand curves will be perfectly elastic. The characteristics of a Perfect Competitions are:
a). Large numbers of buyers and sellers: The presence of a large volume of independent participants on each side of the market and each firm has no impact on the overall market price.
b) Free entry and exit: Industry adjustments to changing market conditions are always accompanied by resources entering or leaving the industry. As an industry expands, it uses more labor, capital, and so on. A perfectly competitive market requires that there be no differential impediments across firms in the mobility of resources into, around, and out of an industry. This situation is known as free entry and exit.
c) Product homogeneity: All the firms in the industry must be producing a standardized or homogeneous product. In consumers’ eyes, the goods produced by the industry’s firms are perfect substitutes for one another. It also contributes to the establishment of a uniform price for the product. One firm will be unable to sell at a higher price than another if the products are viewed as interchangeable, because consumers will always purchase from the lower priced source.
d) Perfect information: Firms, consumers, and resource owners must have all the information necessary to make the correct economic decisions. That is, the relevant information is knowledge of the production technology, input prices, and the price at which the product can be sold. For consumers, the relevant information is a knowledge of their own preferences and the prices of the various goods of interest to them.
In perfect competition there is large number of identical firms producing same product, so, if we start a fast-food restaurant business in a perfect competition, the value-menu is deciding our existence in the market. That should be offer a discount or fewer prices to the customer compared to the market price. The demand in perfect competition is perfectly elastic, so more will be purchased at a lower price. Then the demand for the fast food will increase due to the less priced value menu was so high because offering the same products as always.
In the short run, a competitive firm operating with a fixed plant can vary its output by altering its employment of variable inputs. That the maximizes profit for a hypothetical competitive firm; it includes the short-run cost of production and revenue from the sale of output. The firm is selling in a competitive market because the price is constant regardless of the output level. Note that total revenue (TR) is equal to price times the quantity sold, and it rises in proportion to output since the price is constant. Total cost (TC) rises with output in the same direction, slowly at first and then more rapidly as the plant becomes more fully utilized and marginal cost rises. Total profit is the difference between total revenue and total cost. So we can attain a nominal profit under perfect competition MC=MR=Price.
In typically the slowest day of the week, when their revenues do not seem to be sufficient we can close the Fast fast-food restaurant business for that day. If we can attain MC=MR we can open the restaurant business that day also.
The economic profits, we can easily in perfect competition, they must always equal zero in the long run. Because the freedom of entry and exit will not allow any firm to attain abnormal profit under perfect competition.
The value-menu fast-food restaurant decide to be open on Mondays to attain maximum business through a special discount on price in that day, the sales will increase due to the market situation of perfect competition. If the cost is not equal to revenue then would it decide not to be open on Mondays.
In monopolistic competition, there are many sellers like perfect competition. But, they don’t sell identical products. Instead, they sell differentiated products; products that differ somewhat, or are perceived to differ, even though they serve a similar purpose. Products can be differentiated in a number of ways, including quality, style, convenience, location, and brand name. Regardless of customer loyalty to a product, however, if its price goes too high, the seller will lose business to a competitor. Under monopolistic competition, therefore, companies have only limited control over price. So here also we can use the value-menu to give the product at a less price and can attain a profit more than that in perfect competition.
Oligopoly means few sellers. In an oligopolistic market, each seller supplies a large portion of all the products sold in the marketplace. In addition, because the cost of starting a business in an oligopolistic industry is usually high, the number of firms entering it is low. As large firms supplying a sizable portion of a market, these companies have some control over the prices they charge. value-menu to give the product and attain a profit more than that in perfect competition.
In a monopoly, however, there’s only one seller in the market. The market could be a geographical area, such as a city or a regional area, and doesn’t necessarily have to be an entire country. value-menu to give the product and can attain a maximum profit than other market, because we can decide our price, no competition.
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