question_answer

Explain the implication of the following in a perfectly competitive market:

(a) Large number of buyers

(b) Freedom of entry and exit to firms

Or

Explain the implications of the following in an oligopoly market:

(a) Inter?dependence between firms

(b) Non?price competition

Answer:

Implications of the following in perfectly competitive market:

(a) Large number of buyers: There are very large number of buyers in perfectly competitive market that no individual buyer can influence the price or demand of any commodity. An individual buyer is the price taker and not the price maker,

(b) Freedom of entry and exit to the firms; No firm in the perfectly competitive market can earn above normal profit in the long run, i.e., a firm earns zero abnormal profit. In other words, each firm earns just normal profit, i.e., minimum profit which is necessary to carry out business.

Or

Implications of the following in oligopoly market:

(a) Inter?dependence between firms: There are very few large firms in oligopoly market and these firms are mutually dependent on each other and hence influence the market price and output. To fix the price and its output, every firm has to consider the decision of the rival firm also as all the firms are mutually dependent on each other.

(b) Non ? price competition: Since the firms in oligopolistic market are inter? dependent and they fix the prices together, so there is no price competition among the firms as they fix the price after taking into consideration the decision of all the firms together.