Question

Consumers benefit from competition between firms. Use the tools (i.e. AC, MC, MR curves and demand curve facing the firm) to explain why.

Answer 1

Answer - In the lower levels of competition , the demand is concentrated over the few firms , the MR > MC and the firm is capable of earning the economic profits due to the concentrated demand. But as the level of the competition increases , the demand gets spread over the large number of firms. The demand for the other firms decreases and now they have to lower there prices to sell more. They maximise their profits at the point of MR = MC and earn normal profits due to increased competition. Hence the consumers benefit from the lower prices and increased product variety through the greater number of sellers.