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Price & Output Determination under Perfect Competition - Product Pricing, Business Economics Video Lecture | Business Economics & Finance - B Com
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FAQs on Price & Output Determination under Perfect Competition - Product Pricing, Business Economics Video Lecture - Business Economics & Finance - B Com
| 1. What is perfect competition and how does it affect product pricing? |  |
Ans. Perfect competition is a market structure where there are many buyers and sellers, and no single participant has control over the market price. In perfect competition, product pricing is determined by the forces of demand and supply. The price is set at the equilibrium point where the quantity demanded by buyers matches the quantity supplied by sellers. As a result, all firms in perfect competition sell their products at the same market price.
| 2. How is price determined under perfect competition? | |
Ans. In perfect competition, price is determined by the intersection of the market demand and supply curves. The market demand curve represents the quantity of a product that buyers are willing to purchase at different price levels, while the market supply curve represents the quantity of the product that sellers are willing to supply at different price levels. The equilibrium price is the price at which the quantity demanded equals the quantity supplied, resulting in a stable market price.
| 3. What factors affect output determination under perfect competition? | |
Ans. Output determination under perfect competition is influenced by several factors. These include the availability of inputs, technology, production costs, and market demand. Firms in perfect competition aim to maximize their profits by producing at the level where marginal cost equals marginal revenue. This occurs at the point where the additional cost of producing one more unit of output is equal to the additional revenue generated by selling that unit.
| 4. How does perfect competition impact the profitability of firms? | |
Ans. In perfect competition, firms have little control over the market price as it is determined by the forces of demand and supply. This lack of pricing power can make it challenging for firms to generate significant profits in the long run. However, firms in perfect competition can still achieve short-term profits if they are able to minimize their production costs and differentiate their products from competitors. Overall, perfect competition tends to limit the profitability of individual firms compared to market structures with more pricing control.
| 5. Can firms in perfect competition engage in price discrimination? | |
Ans. Price discrimination refers to the practice of charging different prices to different customers for essentially the same product or service. In perfect competition, firms generally cannot engage in price discrimination. Since all firms sell their products at the same market price, there is no scope for charging different prices to different customers. Price discrimination requires some level of market power, which is absent in perfect competition where all firms are price takers.
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