If the curve is constant, the producer has constant returns to scale. 3 a) Features of perfectly competitive market structure: • Number of firms: in this type of market structure, the production is done by large number of firms. Because of higher number of firms, a small portion of the total supply is contributed by each firm and firms do not have market power. It depicts that no firm can determine the price and they
The article written by Thomas J. DiLorenzo entitled The Myth ofNatural Monopoly, as the title states is about unravelling and explaining the natural monopoly myth. Natural monopoly is defined as a monopoly in which only a single firm can obtain the utmost benefit from the industry it is in. This usually happens when there is an extremely high fixed cost in production. As production increases, the long run average cost of production decrease as fixed cost is spread over the units produced. It would be more beneficial for the manufactured product to be produced by only one producer since more investors would possibly bloat the price considering the high fixed cost involved in manufacturing.
They combine together to avoid competition among themselves regarding price and output of the industry. • Non-Collusive Oligopoly – a market situation where there is no agreement among the firms, hence each firm acts independently. 2. Characteristics of Oligopoly a. Very few sellers of the product The number of sellers dealing in homogenous or differentiated product is very small that the pricing and output policy of the individual firm can influence the industry price and output.
Riley (n.d.) has demonstrated that “the size of market allows business to exploit economies of scale leading to improvements in productive efficiency”. Furthermore, economies of scale enhance international competitiveness, resulting in lower prices for consumers. Inefficient companies are squeezed out by more efficient competitors and the cost advantage is partly passed on to the consumer. In order to test whether this has actually been the case, one can look at the development of firms’ price mark-ups, which means the difference between the price the firm charges and the cost of a product. If the single market has led to more competition, mark-ups should decrease in heavily protected and inefficient markets and a process of price convergence should be perceptible.
Individuals with the most assets (cash) keep getting wealthier, while individuals with few assets get poorer. A few administrations, like railroads and carriers, have issues advertising their administrations while keeping up moo costs. In these cases, government may step in to keep the administrations accessible at a sensible fetched to customers since the benefit benefits the society as a entirety. A few faultfinders of showcase economies say that greed is the driving guideline. They think that markets ought to not be permitted to benefit while causing potential hurt to the environment by utilizing up all accessible assets and contaminating the planet.
Profitability Profitability is vital to a company and can be measuring using a number of different profitability ratios. Strong Tie should be aware of where its’ profitability levels as it is an indicator of the firm’s value. Strong Tie’s gross profit margin is steadily decreasing and below industry average. This means that Strong Tie is not generating as much revenue in comparison with its cost of goods sold. Operating profit margin helps to identify how much profit remains after all operating expense have been eliminated from sales.
Therefore, newcomers enter the market and this will lead to an increase in supply. As new firms enter, the supply curve shifts to the right, equilibrium market price falls, and profits fall. Firm that earn supernormal profit in short run will only be able to earn normal profit in long run due to entry of newcomers. • Economic Losses in the Long Run If firms in an industry are experiencing economic losses, some will leave. This is due to the losses in short run forces those sellers who cannot cover their AVC or TVC to leave the market.
The result is a decrease in sales volume of the business in question, which means less profit due to fixed and overhead costs. On the other hand, lowering the commodity price might result in an increase in profit, especially in elastic markets. In these markets, lowering prices make the sales volume jump significantly, thereby decreasing overhead expenses per unit. However, in inelastic markets, decreasing prices may result in a
Marx assumed that he buys what he buys at their equilibrium and sells what he sells at its equilibrium and still end up with more money that what he have initially started with. This shows that the surplus value was added somewhere. Surplus value cannot arise from the circulation of commodities as if the seller is to increase the price of the commodity to get profit he would lose the profit as a buyer and the result will be high prices everywhere which does now benefit anyone. The raw materials entering the process also cannot create surplus value. The value which the materials have at the outset is transferred to the product at the conclusion.
EFFECT OF DEMAND MEAN AND NUMBER OF SCENARIOS The relationship between demand mean and total expected profit has been studied at different values of scenarios of 1, 8, 27 and 64. Figures 2-6 show that the general shape of the relation between demand means and total expected profit is almost the same for a different number of scenarios. In general, the increase in demand mean increases the total expected profit as shown in Figure 6. The total expected profit is linearly proportional to the total demand. At transient ranges, it decreases slightly due to the shortage cost as it is not profitable to open an extra location.