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Unit 5 Discussion
Describe an industry that would meet the conditions of a perfectly competitive industry:
1. There are many buyers and sellers so neither side of the market has market power.
2. The product provided to the market is identical across suppliers.
3. There are no barriers to entry.
How do individual firms in a perfectly competitive industry respond to an increase in the market demand for the product? Would advertising by individual firms in this type of market provide any benefits?
In order to maximize profits, monopolies produce where: MARGINAL REVENUE = MARGINAL COST < MARKET PRICE. How does this compare to the profit maximization condition for perfectly competitive markets, and how do these differences contribute to deadweight loss in a monopoly market? Can you think of reasons why a monopoly might decide on their own to increase production and lower prices to earn an acceptable profit rather than maximize profits?