Revenue and Cost, Pure Competition, and Creative Destruction

Views and Experience Discussion Q&A
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Views and Experience Discussion
Answer 1
A profit-maximizing producer must ensure that his business makes the most profit. If not most, it should be the highest according to their investment resources. They have to control the inputs that go into the production procedure and also regulate the prices of the item they are trying to sell (goods or services). In light of the information above, cost and revenue regulation is critical to monitor.
However, a more critical region is revenue. Profit-maximizing producers have to focus on the income which comes from the revenue. It must also be remembered that the revenue can position the business higher in the industry and determine the future of all other operations in place.
Additionally, the revenue a business generates reflects the number of products sold at the finance department’s current prices. If the prices of a firm are set too high, the revenue drops because customers prefer cheaper alternatives and hence approach competitors in the market. It ultimately results in a drop in market share for a business. A profit-maximizing producer has direct control over revenue.
In contrast, they cannot control the costs as efficiently because costs depend on externalities like the availability of suppliers in the industry, prices charged for raw materials, labor rates, rent, etc. These costs change due to market dynamics. Internal business operations will not impact any of these factors. Revenue is also essential because profits come from the revenue after all the costs have been paid, like employee salaries (Kokemuller, 2016). Firms that do not make significant profits must leave the market or are in a huge debt that can result in bankruptcy. Revenue is a business’s economic engine; therefore, a profit-maximizing producer should monitor revenue as a top priority.
Answer 2
Numbers
When one says there is perfect competition in the market, there should be many buyers and sellers (Ning, 2021). The sellers are enormous. Therefore, a single buyer or seller cannot influence the price to influence the market. Sellers have to sell each good or service according to the price set by the market.
Homogeneous Items
Every product the sellers sell in the market must be identical, irrespective of who the seller is. The goods become perfect substitutes for one another. the buyers do not look for any unique feature or have any personal preference. Therefore, the sellers must sell the items at a price set by the market; they cannot sell above or below this price.
Free exit and entry
There are no entry or exit restrictions in the market when we consider buyers or sellers in perfect competition. When the industry comes to a point where existing sellers make above-average profits, new sellers are free to enter. When abnormal losses occur, existing sellers can freely leave the market. It must be noted that this free exit and entry is always in the long run and never prevails in the short term.
Perfect Knowledge
Every buyer and seller is fully aware of the market conditions and dynamics. No buyer will be...