A perfect competition – Unit 4 Discussion


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A perfect competition. A perfect competition refers to a hypothetical market structure that hardly exists in a real life situation. In this type of model no producer or consumer has the power to dictate prices. It is the most efficient type of a market structure where supply meets demand and production hence matching this so as not to have stock overstaying in store or getting spoilt. Although it is impossible to have it, understanding its parameters is paramount since it helps in benchmarking other market structures (Jain and Sandhu, 2011). A perfect competition.

An increase in demand in this type of a market translate to a rise in prices in the short run but the supper normal prices attracts many small firms which leads to a reduced price in the long run.

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Firms in a perfectly competitive environment face various challenges some specific challenges. One of these challenges is the issue of pricing where firms do not determine their own prices. This may lead to firms to operate at a loss by selling below their total product cost (Truett and Truett, 2006). A perfect competition.

Market structures also determine the hiring practices adopted by any firm. This happens as a result of the differences in the organization structure, factor market, and the internal wage structure. All these vary with the market structure in which a firm is operating (Truett and Truett, 2006). In a perfectly competitive market, CEO must be concerned with employees poaching from competitors. This means that the manager must offer god terms. In a monopoly, employees have limited choices and the terms of employment are dictated by the employer. A perfect competition.

References

Jain, T. & Sandhu, A. (2011). Microeconomics. London: FK Publications. A perfect competition.

Truett, L.J. & Truett, D.B. (2006). Intermediate Microeconomics. Michigan: University of Michigan. A perfect competition.