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What implication dose the “No Market Power” generate in the competitive market from managerial perspective?

What implication dose the “No Market Power” generate in the competitive market from managerial perspective?

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Answer #1

First of let's see, what is the meaning of market power.

A firm has market power if it can affect the market- clearing price of its product through its output decisions.

Now let's see why a firm won't have market power in a competitive market.

In a competitive market ( perfect competition) ,there are a large number of buyers and sellers and the product is homogeneous. Therefore, no seller can charge price higher than the price determined by the market. Firms are price takers in such a market.

From the managerial perspective this implies two things.

* Manger can't charge a price greater than Marginal cost to earn positive economic profits.. In such a market, P= MC. For the manager , price isn't a decision variable.

* Manger must take decisions regarding the quantity of output to be produced.

In fact, there is no strategic decision making other than setting the quantity.

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