Can you tell the difference between a grain of rice from one farm from another g

Question

Can you tell the difference between a grain of rice from one farm from another grain from a different farm? Chances are you can't. And it's markets like this -with identical goods that leave producers to be price takers (rather than having some/much control of their price and quantity combination), and also where entry into and exit from the market are relatively easy, that the economy is supposed to work at its best. Examining how a producer in such a market structure maximizes its profit, why is this type of market structure deemed to be the most efficient and optimal?

Explanation / Answer

Can you tell the difference between a grain of rice from one farm from another grain from a different farm? Chances are you can't. And it's markets like this -with identical goods that leave producers to be price takers (rather than having some/much control of their price and quantity combination), and also where entry into and exit from the market are relatively easy, that the economy is supposed to work at its best. Examining how a producer in such a market structure maximizes its profit, why is this type of market structure deemed to be the most efficient and optimal?

Answer

OPTIMIZATION UNDER PERFECT COMPETITION

The chief characteristic that distinguishes perfect competition from other forms of market condition is that both the buyer and seller are price takers. This is because, the product sold in this market is identical or near identical.

In such a market, any seller can start selling those goods, as there is no barrier to entry.

The only way the seller can maximize his profits therefore is to be more competitive than others. This implies that the seller must find the least cost point where he can produce the product and thereby gain the difference between cost and price s the profit. In economic theory the point is defined as the stage where the Margial cost of producing a unit equals the Marginal revenue from selling the product. Now the marginal revenue or price is given and cannot be influenced. Therefore the seller has no choice, but to use the best , lest cost technology and inputs to maximize his profits.

MERITS OF PERFECT COMPETITION

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