GR 12 PRESENTATIONS PERFECT MARKETS

MICRO-ECONOMICS GR 12 PERFECT MARKET

PERFECT COMPETITION A market structure with a large number of participants selling products that are homogenous. Prices are set by the market forces (demand and supply). Characteristics of Perfect Markets 1.Large number of 5.Products are 7. buyers and sellers 4.Entry and identical - no Businesses exit is trade marks strive to completely achieve 2.Buyers and sellers free maximum 6. Buyers and act independently profit sellers have full knowledge 3.Sellers are price-takers 8. Examples of 9.Demand curve is perfect competitive markets: JSE

Short term vs Long term production capacity of a business Short term Long term • Additional variable production • Additional technology can be factors (labour,capital) are implemented. employed. • Business can increase or a new • Overtime is implemented. plant built. • A shift system is implemented. • New businesses can enter the market. • Economic profit is attainable in the short term. • Businesses will produce at lowest possible average cost. • Only normal profit can be attained.

Competition Tribunal: accept or reject recommendations Competition Competition Appeal Court: Commission: same investigates and standing as makes high court recommendations SA COMPETITiON POLICY prohibits the abuse of power

Question 1 1.1 Answer the following questions. 1.1.1 Name any TWO examples of fixed costs. (2 x 1) (2) 1.1.2 How can a lack of information cause an entrepreneur to make the wrong decisions? (1 x 2) (2) 1.2 Study the graph below and answer the questions that follow.

1.2.1 Identify the market price in the graph above. (1) 1.2.2 At what point does MC intersect AC? (1) 1.2.3 Briefly describe the term break-even point. (2) 1.2.4 What happens at point d? (2) 1.2.5 Explain what would happen if the market price increases to R50. (2 x 2) (4)

1.3 Study the graph below and answer the questions that follow. 1.3.1 Identify the quantity the firm will produce at equilibrium point. (1) 1.3.2 Which curve represents the market price for the perfect competitor? (1) 1.3.3 Briefly describe the term normal profit. (2) 1.3.4 What would the impact on the market be if many firms leave this industry? (2) 1.3.5 Redraw the above graph and insert the average variable cost curve (AVC) to clearly indicate the shut-down point. (4)

1.4 Discuss price formation of an individual firm under perfect competition with the aid of a well-labeled graph. (8) Answer: 1.5 With the aid of a well-labelled graph, explain economic loss in a perfect market. (8) Answer:

Question 2 2.1 Answer the following questions. 2.1.1 Name any TWO institutions that regulate unfair competition in South Africa. (2 x 1) (2) 2.1.2 Why is a perfect competitor unable to influence the market price? (1 x 2) (2) 2.2 Study the graphs below and answer the questions that follow.

2.2.1 Identify the equilibrium point of the individual firm above. (1) 2.2.2 Which time period is depicted in the graph above? (1) 2.2.3 What is the reason for the downward sloping demand curve of the industry? (2) 2.2.4 Why are businesses in this industry referred to as price-takers? (2) 2.2.5 How will new entrants (businesses) affects the perfect market? (2 x 2) (4) 2.3 Study the graph below and answer the questions that follow.

2.3.1 Identify the market structure in the graph above. (1) 2.3.2 Give the value of the market price depicted above. (1) 2.3.3 How will this equilibrium position change in the long run (long term)? (2) 2.3.4 What conditions must exist for this firm to shut down? (2) 2.3.5 Calculate the economic loss faced by this firm. (4) 2.4 Use a graph of total cost (TC) and total revenue (TR) to explain profit maximisation in a perfect market. (8) 2.5 How effective is the competition policy in regulating mergers and takeovers in South Africa? (8)