Question

4. If you are operating a business in a perfectly competitive market. You can sell as much as at the market price. Why can you not simply increase your profits by selling a highest quantity? (10 marks) Answer: 5. Your company operates in a perfectly competitive market. Your Manager told you that advertising can help you increase your sales in the short run. What kind of advertising campaign you will start for your product and how much gain is expected from an effective advertisement? (10 marks) Answer:

Answer 1

4) can be mentioned that in a perfectly competitive market the price is constant and the demand curve is horizontal and therefore the profit-maximizing quantity would be when the marginal revenue is equal to the marginal cost and about that quantity the marginal cost will always be greater than the price as a result of which the profit level keeps on decreasing and therefore even if the highest quantity in cell the marginal cost will be greater than that of marginal revenue or price which might not a new highest profit and therefore we should always stick to the profit-maximizing quantity.

5) It can be mentioned that in a perfectly competitive market the price is actually fixed and the product is homogeneousand in this regard the seller and buyer have complete information about the product and therefore advertising in this case might not actually help because he cannot actually differentiate your product in terms of advertising or cannot claim the price is lower than that of the market price and instead it would increase the cost of your advertising campaign and therefore in order to make an advertising campaign I would actually choose a campaign which has the least cost such as word of mouth advertising and therefore any potential game from it would result in sales but in a perfectly competitive market as buyers and sellers know about each other, there wouldn't be any potential gain