Perfect market competition refers to a macroeconomic concept that describes the structure of a market that is free from any particular influence but controlled entirely by market forces. Under this condition, market forces distribute resources evenly and fairly across companies in the market. Effectively, there is no form of monopoly with all producers having similar market information since they sale similar products (Carbaugh & Prante, 2011). Additionally, there is a large number of sellers and buyers, meaning that the only factor influencing the level of demand and production is the price set by the firm. This condition forces all companies to adopt a single price for the product across the board. When these conditions are absent, the market is deemed less-than-perfect.
The world markets are, in reality, less-than-perfect. Perfect conditions refer to a standard by which market effectiveness can be assessed. Since the marginal revenue generated in perfect market conditions equals the price, it is recommendable to maximize profit at the level where the quantity produced equals marginal cost, P=MC (Png, 2013). In the perfect condition scenario, firms struggle to produce at a level that maximizes marginal revenue while also checking the implication of marginal cost. When the cost of producing an extra unit of the product exceed the additional revenues received, then the firm should reduce the production rate.
Part 2
In the perfect condition scenario, a firm targets maximizing profits at the level where marginal cost and marginal revenue intersect. This level is notable where production equals 4 units and a market price of $8. Under the less-than-perfect scenario, this level is notable the point of 3 units of production with the market price at $7.50. The differences between the two scenario stem from the impact of commodity price. Under perfect conditions, marginal revenue remains constant since it is driven primarily by the price. This condition makes the curve parallel to the x-axis (Carbaugh & Prante, 2011). Furthermore, the marginal cost and unit cost will remain unchanged regardless of the production level. In less-than-perfect condition, factors external to the market forces influence the decisions of players. The imperfect condition relies on the quantity of goods produced to determine the market price. Producers can choose to set any price as long as there is a demand for the product. Because of this stability in prices, the marginal revenue and marginal cost will vary with the level of demand.
Part 3
Under the less-than-perfect market conditions, companies have the liberty to set prices at whatever level as long as consumers are willing to pay at that price. This outcome may arise because the producer operates under certain market advantage, such as critical information that other players may not have. This condition allows for the exploitation of consumers by setting prices that are higher than market rates. Importantly, companies can enhance efficiency in production by producing at levels where marginal revenues equal marginal cost (Carbaugh & Prante, 2011). The focus for production managers is to ensure that they monitor the effect that their pricing policy has on the level of demand and supply so that it is not prohibitively too high. Companies need to continuously check the relationship between marginal cost and marginal revenue to ensure that they maximize profits at the level where the two equal (Png, 2013). The outcome is different under perfect market conditions. Firms operating under perfect conditions do not have to concern itself about the marginal revenues since the prevailing market price dictates this amount.