The Market for Chocolate Cookies Is Comprised of Two Types of Producers. There Are Profit Making Corporations and There Are Non-Profit Organisations (Npos) Which Employ Disabled People. the Market Is Competitive and the
(a)
As the question says the market for chocolate cookies is competitive thus, this complies with the market structure of Perfect Competition where there are a large number of buyers and sellers in the market. The basic characteristics of a Perfect Competition Market structure are that there is perfect knowledge on both sides of the market that is buyers and sellers know what the current market price is and thus, it prevents exploitation of the consumers as producers would not be able to charge unfair prices. This is because each firm produces an insignificant fraction of the total market supply and therefore is unable to affect price, it is for this reason that each firm in perfect competition is known as a price taker. There are no barriers to entry or exit in a perfectly competitive industry and thus, producers can enter or exit the market without any restrictions and thus, without any significant losses.
The intersection of demand and supply curves of the industry determines the equilibrium price a typical producer can charge which also become the demand of the firm. Due to this, the producers cannot exploit the consumers by charging a high price and thus, the price is always at the equilibrium. This is because if the producers charge a higher price, the demand for the product becomes zero, because the consumers can always switch to another producer as the good is homogenous. (Anderton, 2000)
Since the Firms in Perfect Competition are Price takers so they both take the current market price, ‘Pe’ as shown in the Graph where the Market Demand and Supply intersects and form the Market equilibrium. D0 can be assumed as the Total Demand of Chocolate Cookies in the market and S0 can be assumed as the Total Supply of the Chocolate Cookies in the Market. Not for profit Organisations’ (NPOs) Average Cost (ATCn) is higher than the Average Cost of Profit Making Organisations, that is ATCp, because Not for
As the question says the market for chocolate cookies is competitive thus, this complies with the market structure of Perfect Competition where there are a large number of buyers and sellers in the market. The basic characteristics of a Perfect Competition Market structure are that there is perfect knowledge on both sides of the market that is buyers and sellers know what the current market price is and thus, it prevents exploitation of the consumers as producers would not be able to charge unfair prices. This is because each firm produces an insignificant fraction of the total market supply and therefore is unable to affect price, it is for this reason that each firm in perfect competition is known as a price taker. There are no barriers to entry or exit in a perfectly competitive industry and thus, producers can enter or exit the market without any restrictions and thus, without any significant losses.
The intersection of demand and supply curves of the industry determines the equilibrium price a typical producer can charge which also become the demand of the firm. Due to this, the producers cannot exploit the consumers by charging a high price and thus, the price is always at the equilibrium. This is because if the producers charge a higher price, the demand for the product becomes zero, because the consumers can always switch to another producer as the good is homogenous. (Anderton, 2000)
Since the Firms in Perfect Competition are Price takers so they both take the current market price, ‘Pe’ as shown in the Graph where the Market Demand and Supply intersects and form the Market equilibrium. D0 can be assumed as the Total Demand of Chocolate Cookies in the market and S0 can be assumed as the Total Supply of the Chocolate Cookies in the Market. Not for profit Organisations’ (NPOs) Average Cost (ATCn) is higher than the Average Cost of Profit Making Organisations, that is ATCp, because Not for
References: Heyne, P., P.J. Boettke and D.L. Prychitko (2009). Economic Way of Thinking (9th Edition). Mankiw, N.G. (2009). Principles of Economics (5th Edition). Parkin, M. (2007). Economics (8th Edition).