question_answer

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

(a) Large number of sellers

(b) Homogeneous products.

Or

(a) Barriers to entry of new firms

(b) A few or a few big sellers

Answer:

Implications in a perfectly competitive market:

(a) Large number of sellers: The number of sellers is so large that individually they can?t influence the existing price in the market. Large number of sellers in the market implies that the share of each seller in total market supply is so small that no single seller can influence the price and each firm is the price taker.

(b) Homogeneous product: Products sold in the perfectly competitive market is that they are identical in all respects like quality, colour, size and all are the perfect substitutes of each other. Homogeneous products implies that all the firms have to charge the same price for the product i.e. uniform priced prevail in the market.

Or

Implications in an oligopoly market:

(a) Barriers to entry of new firms: There is very tough competition among the firms, so it is very difficult for the new firm to enter into the oligopoly market.

(b) A few or few big sellers: There are few large firms who rule the oligopoly market and control the prices and output of the market. They are the major part who contribute in the market supply and thus the market is controlled by them.