"PASAR PERSAINGAN SEMPURNA" Kelompok 4

Summary

This presentation explores the concept of perfect competition in markets, as defined by JJ Mankiw. It outlines the key characteristics of a perfectly competitive market, such as homogeneous products, perfect knowledge, and free entry and exit. The script discusses the behavior of firms in both short and long-run equilibria, explaining how firms set prices based on market demand and supply. It also touches on the strengths of perfect competition, such as maximizing societal welfare, and its limitations, including unrealistic assumptions and the challenge of technological innovation. Additionally, the impact of scale economies and market entry is analyzed.

Takeaways

• 😀 A perfectly competitive market (Pasar Persaingan Sempurna) is one where many buyers and sellers exist, and no individual has the power to influence prices.
• 😀 In a perfectly competitive market, all firms produce homogeneous products that are indistinguishable to consumers, focusing solely on utility rather than brand identity.
• 😀 Perfect competition assumes perfect knowledge, meaning both consumers and producers have complete information about prices and products in the market.
• 😀 Firms in a perfectly competitive market are price takers, meaning they must accept the prevailing market price without being able to influence it.
• 😀 Entry and exit from the market are completely free, meaning no barriers exist for firms wanting to enter or leave the market.
• 😀 Short-run equilibrium occurs when marginal revenue (MR) equals marginal cost (MC), and firms will continue to operate if the price is greater than average variable cost (AVC).
• 😀 In the long run, firms in perfect competition earn only normal profit (zero economic profit), as any supernormal profit attracts new firms, driving prices down.
• 😀 The supply curve in a perfectly competitive market reflects the total output of all firms in the industry, and firms adjust their output based on changes in price.
• 😀 The strength of perfect competition is that it maximizes consumer welfare by providing the lowest prices and most efficient production levels.
• 😀 A key weakness of perfect competition is its unrealistic assumptions, such as the existence of homogeneous products and perfect information, which do not hold in real-world markets.

Q & A

What is a perfectly competitive market, according to J.J. Menk?

A perfectly competitive market is one where there are many buyers and sellers, and the influence of each individual on the market price is negligible. This is due to the large number of participants in the market.

What are the key characteristics of a perfectly competitive market?

The key characteristics include: 1) Homogeneous products, 2) Perfect knowledge among producers and consumers, 3) Relatively small output from each company compared to the entire market, 4) Companies are price takers, 5) Free entry and exit in the market.

What does 'homogeneous products' mean in the context of perfect competition?

Homogeneous products refer to products that are identical in quality and characteristics, meaning consumers do not care about the brand but only about the utility or satisfaction the product provides.

Why is perfect knowledge important in a perfectly competitive market?

Perfect knowledge ensures that consumers and producers have complete and accurate information about prices and products, meaning consumers won't pay different prices for the same product across different companies, and producers cannot influence the market price.

What is meant by a company being a 'price taker'?

Being a price taker means that a company in a perfectly competitive market cannot influence the market price. It must accept the price determined by the market supply and demand.

How does free entry and exit affect a perfectly competitive market?

Free entry and exit allow companies to enter or leave the market without restrictions or significant costs. This ensures that in the long run, the market reaches equilibrium, where firms earn only normal profits.

What happens to a firm’s output and profits in the short run in a perfectly competitive market?

In the short run, a firm adjusts its output to the point where marginal revenue (MR) equals marginal cost (MC) to maximize profits or minimize losses. If the price is above average variable cost (AVC), the firm continues to produce, even if it incurs losses.

How does the long-run equilibrium in a perfectly competitive market work?

In the long run, firms in a perfectly competitive market must earn normal profits. This occurs when the firm produces at the minimum point of its long-run average cost curve (LRAC), and no firm has an incentive to enter or exit the market.

What are the types of cost structures that can exist in a perfectly competitive market?

There are three types of cost structures: 1) Constant cost industry, where the entry of new firms does not affect production costs, 2) Increasing cost industry, where new firms increase the cost of production, and 3) Decreasing cost industry, where the entry of new firms reduces the cost of production due to economies of scale.

What are some strengths and weaknesses of a perfectly competitive market?

Strengths include efficiency, where prices are the lowest and consumer utility is maximized. Weaknesses include unrealistic assumptions (like perfect knowledge and identical products), challenges in technological development, and potential conflicts between efficiency and fairness, particularly in developing industries.