Shaded area in above is the economics profit as the price or average revenue, is higher then the average cost.
In long run, the period of time is long enough for new chicken meat producers to enter the industry. (Howlett, 1991) As the news of this lucrative market soon spread, each day new chicken meat producers will appear in the market, each entering firm reducing the earnings of existing firms that produce chicken meat. (Sloman, 2006)
The new producers in the market causes the demand “curve” of each individual producer to shift downward, price, average revenue and marginal revenue will shift downward simultaneously. As the consequence, in the long run, the producer will make zero economic profit when demand “curve” will touch its average total cost curve at its lowest point. (Sloman, 2006)
As the rate of profit determines whether a firm stays in the industry or leave; rate of profit is the level of profit as a proportion of the level of capital employed. (Sloman, 2006)
Economic boom in the market can happen during the period of some festive seasons. In that period, the demand will increase in a large scale, the existing producers will gain the supernormal profit; eventually people will attract by this situation and producer in market increase. As the supply and demand increase simultaneously, the price of chicken meat decrease. End up producer gain zero economic profit in this scenario.
Economic slump can occur within the period of some disasters such as bird flu. During the attack of bird flu, people are deterred from eating the chicken meat. Therefore, consumers in market will start seeking for other substitutes such as lamb, beef and etc. The producers in this market have to decrease the price of the chicken meat to increase the sale and survive in the market. In this period, some of the producers will leave the industry as they are not gaining any profit, or facing loss, through the business. As the situation turns better, the price of the chicken meat will increase due to the scarcity of chicken meat producers. It is a repetitive step in perfect competition, as price increases, suppliers will increase and therefore price will fall back to the original place. This balance in price indicates that the economic profit is zero. To conclude this section, any chicken meat producer running their business in long run will gain zero economic profit, normal profit, which is equal to the cost of production.
Initially, market only got S1 amount of suppliers, with the price P1. It creates incentive for new firms to join, supplier in market increase from S1 to S2. Price will fall from P1 to P2. As later on, some firms will leave the market due to loss in profit. Therefore, due to the lack of supplier, supply curve shift to the left, price will increase. (Tutor2u, n.d.)
Identification of problems
In this situation, there are some methods to prevent the firms from falling into the circle of perfect competition. Logically, by increasing the supply or lowering the price, it will raise the profit. Yet, it will not work out because there are some risks to be concerned in this. Nonetheless, there is another better method, which is bringing the firms into the non-price competition.
Monopolistic competition
In monopolistic competition, there are two similarities between monopolistic competition and perfect competition, which is the number of firms and the freedom of entry. Despite the fact that there are quite a large number of firms and each firm has an insignificant small share of the market; any actions the firm takes is unlikely to influence the rivals to any great extent. This is known as the assumption of independence, the choice of one firm in a market will not have any significant cause on its competitor. The main difference between monopolistic competition and perfect competition is the assumption of product differentiation. Each firm in the market will have their own unique product or service compared to other competitors. Therefore, the firm can raise the price without losing their customers. (Howlett, 1991)
Non-price competition
Non-price competition is a marketing strategy in which competitors will not lower the price or to get involved in a price war. Instead, the firms will focus on its product or service by widespread promotion and highlight the uniqueness, benefits and features of their products. (Cohen, n.d.) There are several types of strategies, example like promotional disbursement, product development and brand management costs. (Business Dictionary, n.d.)
Product development
Product development is the creation of a product with new characteristics or a new service to market. It may involve the improvement of an existing product to offer additional benefits to the consumers. Some real life example can be related to KFC, Nandos, Kenny Roger and etc. (Product Development & Management Association, 2006). They sell chicken meat in a different ways which make them unique and attract more customers than those chicken meat producers in wet market. Their products are improving time by time so the customers will not get bored of it. In this case however, the chicken meat producer can actually sell the product in a different way. (Business Dictionary, n.d.) The chicken meat producer could do some improvements for the product they produce. One of the common comparisons for the chicken meats is organic and non-organic chicken meats. Consumers prefer organic chicken meats because it is healthier, and this can be one of the advantages. Besides that, chicken meat producer can roast, steam or fry the chicken with their special ingredients to attract more customers instead of selling the raw chicken meats. (Smith et, 1991)
Promotional disbursement
Advertising is the most common used technique and customers can see advertisement everywhere. The most general form of advertising media includes radio, television adverts, cinema, magazines, newspaper and etc. Once more real life example; we can see the advertisement made by KFC and Nandos everywhere. The theme songs, slogan, and their eye-catching pictures of their products catch the customers’ attention. They pay to deliver their message through any medium and the cost they paid for the promotion will be covered by the profit from the sale of the products. In this case, the chicken meat producers can do some advertising to restaurants that are selling chicken meat. They can promote the chicken meat that append with the additional benefits. So those restaurants that are providing the service will buy from them because of the better quality of the products the producer has. (Ulrich et all, 2004)
Conclusion
As conclusion, non-price competition can help the chicken meat producer to increase her profit by not lowering the cost of chicken meats. Besides that, the economics model, perfect competition, will never happen in real life. It is just an assumption made by economists and reason why it will not happen in real life is because of the statements of perfect knowledge. It is impossible for the existence of consumer or producer with the perfect knowledge to the market.
Reference List
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Smith, Preston G., Reinertsen, Donald G., (1991) Developing products in half the time, Van Nostrand Reinhold, New York.
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