Question

In a perfectly competitive market where there is virtually no product differentiation, what do you think are the priorities or focus of a firm? How could a firm increase profits?

Answer 1

In perfect competition , firms sell homogeneous products . So advertising is of no use as product cannot be differentiated through advertisement campaigns . In perfect competition the priorities or focus of a firm is product quality and quantity . the product must be at par with other firms and the firm should be able to take benefit of scale of production . Increasing quantity lowers average cost of production which can fetch some profits in short run . But in the long run more firms will be attracted towards the market causing economic profits to fall to zero . In long run a competitive firm will always have zero economic profits .