Potato growing closely resembles a perfectly competitive industry. Why don\'t we

Question

Potato growing closely resembles a perfectly competitive industry. Why don't we observe potato farmers engaging in price-cutting competition? Why is it not sensible for individual potato growers to advertise their products? How does technological advance affect the price and output of a perfectly competitive industry? In the process of adjusting to technical advances, firms that adopt the new technology early will enjoy economic profits white those that keep on using the old technology will suffer economic losses. Why? Why can monopoly profits persist, even in the long run? Graphs may be used to help clarify answers

Explanation / Answer

i) It's not a good idea for individual potato growers to engage inprice-cutting competition because while they may temporarilyattract additional buyers, other growers will soon follow suit,resulting in a losing situation for all growers. It's not sensiblefor them to advertise their products because potatos are highlystandardized products. Investing in advertising will only raise theprice of the products, pushing potential buyers away. ii) a) Technological advance shifts the supply curve to the right,thus it decreases the price and increases the output. b) Firms that adopt the new technology have access to a much morefavorable production curve, with the ability to produce more atlower costs. The profits reaped through the adoption of newtechnology is an economic profit, because the firm gains a profitin addition to the normal opportunity cost required for it to stayin the industry. ii) Monopoly profits can persist because of the barrier for entrythat allows a monopolist to maintain its position in the market.Examples of barriers for entry include a required but uncertainlarge upfront investment, patents or other intellectual propertylaws, as well as other government regulation. Firms are unable tomake an entry into this market, allowing the monopolist to continueto earn a profit above the normal opportunist cost.

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