Questions On Pure Competition

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Erica Hilbig
Chapter 8

1. Pure competition involves a vast number of firms selling standardized products in a market that is easily entered and exited. Pure monopoly is comprised of one single firm selling a unique product that has no quality substitutions. Monopolistic competition includes many firms advertising differentiated products in a market with relatively easy entry and exit. An Oligopoly is comprised of a few firms vying for consumers’ attention to either a standardized or differentiated product, with difficult entry or exit to and from the market.

2. Although true pure competition is a rarity, studying this market form does lend insight into the economic market in general as well as several specific regions of marketing. For example, such markets as agriculture, fish, foreign exchange, basic metals and stock shares may be better understood through this model. Pure competition provides a standard for evaluating the efficiency of real world markets and serves as a decent starting point for determining an efficient price and output of goods.

4. Yes, it may prevent further financial loss for a firm to continue operation as long as its losses do not exceed the losses that would be incurred by paying the entirety of its fixed costs.

5. If a firm has no fixed costs and is still losing money, the best possible decision would be to temporarily or maybe even permanently shut down operations. A firm without fixed costs does not need to distinguish between short run and long run because all costs are variable and may be changed quickly. The only short-run or long-run decision that need be made is how long to shut down operations.

6. A firm will be profitable as long as the last unit