6. Perfect Makert

Question 1

What is a market?

Answer 1

• It is an institution or mechanism that brings together the buyers and sellers of a
good or a service.
OR
• It exists as a result of the interaction between buyers (demand) and sellers
(supply). It is also called the market mechanism.

Question 2

What is market conduct?

Answer 2

• Market conduct involves the things done by firms in their capacity as suppliers and buyers and relates to their objectives, competition methods to achieve their objectives and inter firm conduct.

Question 3

What are the objectives of the business?

Answer 3

• To make profits
• To increase turnover
• To grow the business

Question 4

The market structure

Answer 4

The major organisational features of a market, (e.g. number of sellers/buyers the degree of product differentiation/the availability of information) are called the structure of the market

Question 5

There are FOUR market structures / types of markets

Answer 5

1 Perfect Competition
2 Imperfect competition:
o Monopolistic competition o Oligopolies
o Monopolies

Question 6

DIFFERENT TYPES OF COSTS

Answer 6

1. MC = Marginal Cost
   It is the amount by which the total cost increase when one extra unit of a product is produced.
   ∆Total Cost (TC) ÷ ∆ Output (Q) = MC
2. MR = Marginal Revenue
   Marginal revenue refers to the extra amount of income earned when an additional (extra) unit of a product is sold.
   ∆TR ÷∆ Q = MR
3. AC = Average Cost
   Fixed Cost + Variable Cost = Total Cost Total Cost ÷ Total output = AC.
   Also called unit cost.
4. AR = Average Revenue
   Average revenue refers to the amount the enterprise earns for every unit sold.
   TR ÷ Q = AR
   Because TR = P x Q,
   it follows that AR = PQ ÷ Q therefore, AR = Price
5. AVC = Average Variable Cost
   Variable cost divided by number of units produced.
   Variable costs ÷ total output = AVC.
6. P = price
   A value that will purchase a definite quantity, weight, or other measure of a good or service.
7. Q = Quantity
   The extent, size, or sum of countable or measurable discrete events, objects, or phenomenon, expressed as a numerical value.

Question 7

Explicit cost

Answer 7

Explicit cost is the actual expenditure of a business on the purchase or hire of the inputs required for the production process.
Explicit costs include:
• Wages of labourers / Interest on borrowed capital / Rent on leasing land and buildings
• Expenditure on raw material / Water / Electricity / Property taxes /Motor car
expenses

Question 8

Implicit costs

Answer 8

Implicit costs = is the value of inputs that are owned by the entrepreneur and used in the production process.

Implicit costs include:
• Forfeited rent that could have been earned if the owner used his own building.
• Forfeited interest that could have been earned if the owner had invested his/her
money.
• Forfeited salary that could have been earned if the owner had worked elsewhere
and earned a salary.