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Contestable markets are characterized by "hit and run" competition; if a firm in a contestable market raises its prices so as to begin to earn excess profits, potential rivals will enter the market, hoping to exploit the high price for easy profit. When the original incumbent firm(s) respond by returning prices to levels consistent with normal ...
Wild fish stocks are a rivalrous good, as the amount of fish caught by one boat reduces the number of fish available to be caught by others. In economics, a good is said to be rivalrous or a rival if its consumption by one consumer prevents simultaneous consumption by other consumers, [1] or if consumption by one party reduces the ability of another party to consume it.
National economies can also be classified as developed markets or developing markets. In mainstream economics, the concept of a market is any structure that allows buyers and sellers to exchange any type of goods, services and information. The exchange of goods or services, with or without money, is a transaction. [1]
Only in the short run can a firm in a perfectly competitive market make an economic profit. Economic profit does not occur in perfect competition in long run equilibrium; if it did, there would be an incentive for new firms to enter the industry, aided by a lack of barriers to entry until there was no longer any economic profit. [11]
Economic profit can, however, occur in competitive and contestable markets in the short run, since short run economic profits attract new competitors and prices fall. Economic loss forces firms out of the industry and prices rise till marginal revenue equals marginal cost, then reach long run equilibrium.
Examples of close-to-perfect markets typically include share and foreign exchange markets while the real estate market is typically an example of a very imperfect market. In such markets, the theory of the second best proves that, even if one optimality condition in an economic model cannot be satisfied, the next-best solution can be achieved ...
Two different types of cost are important in microeconomics: marginal cost and fixed cost.The marginal cost is the cost to the company of serving one more customer. In an industry where a natural monopoly does not exist, the vast majority of industries, the marginal cost decreases with economies of scale, then increases as the company has growing pains (overworking its employees, bureaucracy ...
Predatory pricing is a commercial pricing strategy which involves the use of large scale undercutting to eliminate competition. This is where an industry dominant firm with sizable market power will deliberately reduce the prices of a product or service to loss-making levels to attract all consumers and create a monopoly. [1]