FORMS OF THE INDUSTRIAL ORGANIZATION
Forms of the Industrial Organization
University of Phoenix
Pure Competition ? April Vanek
Pure competition is characterized by a large number of firms, free entry and exit into the market, standardized products, and independent sellers in large national or international markets. Firms do not participate in non-price competition nor do they attempt to control product price. "That means that the individual competitive producer is at the mercy of the market" (Brue & McConnell, 2004, Ch 23). An example of a pure competitive business is Earthbound Farm. In its infancy, Earthbound Farm started as a backyard garden which demonstrates free and easy entry into the market, and standardized products. Over the last 22 years the company has grown its organic farms to more than 30,000 acres.
In a purely competitive structure, a single firm cannot impact pricing in the market because demand for its products is elastic. Thus, price can only be affected by all firms simultaneously reducing or increasing output. An individual firm can maximize its profit by adjusting its output and use of its resources. By comparing total revenue and total cost, or marginal revenue and marginal costs, Earthbound Farm can determine an appropriate level of output. "With additional output, total cost begins to rise by ever-increasing amounts because of the diminishing returns accompanying more intensive use of the plant" (Brue & McConnell, 2004, Ch 23). In order for Earthbound Farms to truly increase total revenue, they must reduce total cost by becoming more efficient at harvesting organic produce. Fortunately, their market approach is successful for ...