Answer to Question #163685 in Economics of Enterprise for Hlomohang Lentsa

Question

In certain industries, firms buy their most important inputs in markets that are close to perfectly competitive and sell their output in imperfectly competitive markets. Cite as many examples as you can of these types of businesses. Explain why the profits of such firms tend to increase when there is an excess supply of the inputs they use in their production process.

Answer 1

Economics Enterprise

Perfectly competitive markets like perfect competition have many buyers and many sellers, and therefore market forces control the prices of the commodities. Therefore some companies like fast-food restaurants buy raw materials like broiler chicken and potatoes from farmers at low prices and sell their end products at high prices, making them earn a lot of profits. Farmers are many in the market, and therefore they exist in a perfectly competitive market since the buyers are also many. Fast food restaurants like burger king and McDonald's exist in the imperfect market known as monopolistic competition (Gitman et al., 2018). There are few sellers in this market, but there are many buyers, and therefore the sellers set the prices of their products. The products in monopolistic competition are not similar and thus not easily substitutable.

 

References

 

Gitman, L. J., McDaniel, C., Shah, A. J., Reece, M., Koffel, L., Talsma, B., Hyatt, J. C., OpenStax College, (2018). Introduction to business.