Final paper Essay Example | Topics and Well Written Essays - 2000 words - 4

Final paper - Essay Example A market is said to be in perfect competition when there are a large number of buyers and sellers perfectly aware of the market prices, and no firm is large enough to have any economic power over the industry (Amacher & Pate, 2013). The two main characteristics of a perfect market are low barriers to entry and exit, i.e. any new firm can enter the market because of no restrictions such as high setup cost, legal barriers or any other. All the firms are earning normal profit as there is strong competition within the industry. Secondly, homogenous products are produced, i.e. all products are identical or standardized and are substitutes of each other, thus sharing the same price as well (Amacher & Pate, 2013). An imperfect competition is where there are not many producers in the market and there is less competition as buyers and sellers are not fully aware of the prices so different prices exist for same product in the market (Amacher & Pate, 2013). There are three forms of an imperfect market: Under this structure, there are few sellers as compared with perfect competition and the products produced are differentiated due to branding, which gives the producer a way to have his own pricing policy and thus can earn more than normal profits (Amacher & Pate, 2013). There are a few suppliers in the market in this structure, and every supplier has a substantial control over the prices, and output produced because few suppliers control the entire supply in the market. There is strong rival consciousness because of the interdependence of suppliers. There is a possibility of product differentiation as well as substitute products, and the price-output policy of each supplier depends upon the degree of homogeneity or heterogeneity (Amacher& Pate, 2013). There is a single seller or producer who controls the entire market. As he