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What are the pros and cons of perfect competition

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Reference no: EM132208292

Question: Consider the agricultural industry. How does a single firm (farmer) in the agricultural industry match the characteristics of a perfectly competitive market? Explain each of the following.

(Answer each question thoroughly to get full credit.)

• What is the number of firms in the industry in your example? Many or few? How many is considered 'many' in perfectly competitive markets. Explain.

• Are there barriers to entry and exit? Explain.

• Products: Identical (homogeneous) products or do firms differentiate their products from others? Explain.

• Are there substitutes for the firm's product? Explain.

• What is the demand a single firm (farmer) is facing in this industry? What is the price elasticity of demand for the firm's product? Explain.

• Are firms in the industry price-takers? What does a price taker mean?

• What is the competitive firm's profit in the long run? What happens when there is a change in market conditions in the short run? (change in demand or change in supply)? How will the market adjust in the long run?

• Explain how perfect competition leads to efficiency in the long run using the allocative and productive efficiency.

• What are the pros and cons of perfect competition?

Reference no: EM132208292

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