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Describe the four different views of market power. II. List assumption behind traditional model of perfectly competitive market III. describe why economic profits are driven to zero under perfect competition?
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Describe the four different views of market power. II. List assumption...
Four different views of market power:
- Traditional view: Market power is the ability of a firm to raise prices above the competitive level without losing all its customers.
- New view: Market power is the ability of a firm to influence the market price by controlling the quantity it produces.
- Monopoly power: Market power is the ability of a single firm to dominate a market.
- Oligopoly power: Market power is the ability of a few firms to collude and act as a single monopolist.
Assumptions behind traditional model of perfectly competitive market:
- Many buyers and sellers in the market.
- Homogeneous products.
- Perfect information.
- Free entry and exit of firms.
- Firms are price takers.
Explanation of why economic profits are driven to zero under perfect competition:
Under perfect competition, economic profits are driven to zero due to the following reasons:
- Price taking behavior: Firms in a perfectly competitive market are price takers, meaning they have no control over the market price. They must accept the prevailing market price for their goods or services.
- Free entry and exit: In the long run, if firms in a perfectly competitive market are earning economic profits, new firms will enter the market attracted by these profits. This increased competition will drive prices down until economic profits are reduced to zero.
- Efficiency: In the long run, firms in a perfectly competitive market are forced to operate at the lowest possible cost in order to stay competitive. This leads to efficient allocation of resources and drives economic profits to zero.
- Traditional view: Market power is the ability of a firm to raise prices above the competitive level without losing all its customers.
- New view: Market power is the ability of a firm to influence the market price by controlling the quantity it produces.
- Monopoly power: Market power is the ability of a single firm to dominate a market.
- Oligopoly power: Market power is the ability of a few firms to collude and act as a single monopolist.
Assumptions behind traditional model of perfectly competitive market:
- Many buyers and sellers in the market.
- Homogeneous products.
- Perfect information.
- Free entry and exit of firms.
- Firms are price takers.
Explanation of why economic profits are driven to zero under perfect competition:
Under perfect competition, economic profits are driven to zero due to the following reasons:
- Price taking behavior: Firms in a perfectly competitive market are price takers, meaning they have no control over the market price. They must accept the prevailing market price for their goods or services.
- Free entry and exit: In the long run, if firms in a perfectly competitive market are earning economic profits, new firms will enter the market attracted by these profits. This increased competition will drive prices down until economic profits are reduced to zero.
- Efficiency: In the long run, firms in a perfectly competitive market are forced to operate at the lowest possible cost in order to stay competitive. This leads to efficient allocation of resources and drives economic profits to zero.
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Describe the four different views of market power. II. List assumption behind traditional model of perfectly competitive market III. describe why economic profits are driven to zero under perfect competition?
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Describe the four different views of market power. II. List assumption behind traditional model of perfectly competitive market III. describe why economic profits are driven to zero under perfect competition? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Describe the four different views of market power. II. List assumption behind traditional model of perfectly competitive market III. describe why economic profits are driven to zero under perfect competition? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Describe the four different views of market power. II. List assumption behind traditional model of perfectly competitive market III. describe why economic profits are driven to zero under perfect competition?.
Describe the four different views of market power. II. List assumption behind traditional model of perfectly competitive market III. describe why economic profits are driven to zero under perfect competition? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Describe the four different views of market power. II. List assumption behind traditional model of perfectly competitive market III. describe why economic profits are driven to zero under perfect competition? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Describe the four different views of market power. II. List assumption behind traditional model of perfectly competitive market III. describe why economic profits are driven to zero under perfect competition?.
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