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Theory of Competition all depends on weather or not the company has more output than input. In other words if the companies revenue will leave some profits.

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Introduction

Theory of Competition all depends on weather or not the company has more output than input. In other words if the companies revenue will leave some profits. Perfect competition Perfect competition is heaven for consumers but hell for firms. In perfect competition all products are the same and they all have access to the same information about techniques of production and developments in the industry. This means that a firm can only compete on price and that buyers have supreme power. Since products are homogenous, which means a product has no brands and no difference between individual goods, this means buyers can easily compare products, and the only dimension is price. Should a firm increase its price even by 1%, it will therefore lose all its customers. Customers will leave because they have perfect information and will therefore know that there are cheaper suppliers of the product. ...read more.

Middle

This means that consumers are can not do anything about price changes. The monopolist therefore has considerable control over its price and product and it will make the greatest possible profit that it can possibly make. The only threats to a monopolist are the government and the possibility that its products may become outdated. For example, there is no substitute for petrol so petrol prices will continue to rise and the consumers do not have a say in the significant price which varies. A monopoly is an industry in which there is one seller. Because it is the only seller, the monopolist faces a downward-sloping demand curve. So all in all imperfect competition has significant control over their prices but most cases of perfect competition don't. This is because perfect competition has no barriers and no brands and they can all gain the same information as each others. ...read more.

Conclusion

For example, large firms can use expensive machinery, intensively. * Managerial economies made in the administration of a large firm by splitting up management jobs and employing specialist accountants, salesmen, etc. * Financial economies made by borrowing money at lower rates of interest than smaller firms. * Marketing economies made by spreading the high cost of advertising on television and in national newspapers, across a large level of output. * Commercial economies made when buying supplies in bulk and therefore gaining a larger discount. * Research and development economies made when developing new and better products. External Economies of Scale These are economies made outside the firm as a result of its location and occur when: * A local skilled labour force is available. * Specialist local back-up forms can supply parts or services. * An area has a good transport network. * An area has an excellent reputation for producing a particular good. For example, Sheffield is associated with steel. ...read more.

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