Assignment II Case Study--Perfect Competitive Market Model

A firm is the smallest unit of production, the objective of its performance is to maximize the economic profits which can be achieved by minimizing cost of production or maximizing the total revenue. The prospects of profit for a firm are further guided by market conditions. In a market where a firm has to sell its output there may be competitive, monopolistic or oligopolistic conditions. Each market type has a different impact on the price …

…spread through an industry. Some firms whose plants are on the verge of being replace will be quick to adopt the new technology, while other firms whose plants have recently been replaced will continue to operate with an old technology until they can no longer cover their average variable cost. Once a average variable cost cannot be covered, a firm will scrap even a relatively new plants in favor of a plant with new technology.