Perfect Competition

Topics: Economics, Perfect competition, Microeconomics Pages: 2 (554 words) Published: October 23, 2011
Under the assumptions of perfect competition that all firms are price takers, they all produce a homogenous product, and there are no barriers to market entry or exit; it makes it inherently difficult for the company to affect the products price. This being the case, it doesn’t make sense for them to sink a lot of money into research and development or technological advances that will not bring them an increase in their profit levels since they can’t raise the product price in order to increase their profit. In perfect competition, all competitors should focus on reducing their production costs as much as possible in order to make them able to be more competitive in the market. I would think it would be difficult to encourage a company to do research in a perfectly competitive market simply because the firm doing the research will have to raise their price to cover whatever changes their research has deemed necessary and just by doing this the market would no longer be in perfect competition. They may now have the advantage with newer technology but they also have to charge a higher price for it and possibly win a dominant share of the market because of the changes. If they were able to do research that showed consumers preferred one style or thing to another, they may be able to use this to their advantage in their marketing strategy and market placement. Thomas, C. & Maurice, S. (2011). Managerial economics: Foundations of business analysis and strategy (10th ed.). New York: McGraw-Hill

Market power is what allows companies to be successful and make a profit in the long run. Even though QuadPlex Cinema has market power, it is losing money. Even though a firm has market power, when they increase price the demand will fall. The measurement of market power is based on the availability of substitutes. Since there are no more cinemas extremely close by, QuadPlex inherently has some degree of market power. As a way of measuring market power, they can use the...
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