COSTS OF PRODUCTION Essay Example | Topics and Well Written Essays - 750 words

COSTS OF PRODUCTION - Essay Example To understand the concept indivisibility of some factor inputs, we can look at some examples from the Tropical Smoothie cafà ©. Some of the indivisible inputs include the business idea, entrepreneurial skills, and the skills of individual workers among others. In this  case, it is  clear that not all inputs all divisible. Therefore, the indivisible inputs should be utilized efficiently to avoid wastage. There exist several characteristics or features of a competitive market structure. For instance, there are no barriers to entry in the market. In this regard, firms are free to penetrate or exit the market on their own pleasure. As a result, there are many small firms that serve the entire market such that no firm has sufficient power to control the market (Dwivedi, 2006). Therefore, the price of commodities in such a market are determined by the forces of demand and supply. In essence, the firms have to set prices that are in line with the existing market price. Generally, it can be argued  that the firms in such a market are price takers. Van & Camesasca (2001) state that a perfectively competitive firm offers identical products to that of competitors. In this regard, the consumers can switch from one firm to the other since all products are close substitutes. Actually, the products serve the same customers’ needs and wants and, therefore, firms are forced to devise unique means of surviving the competition. In essence, the homogeneity of products in perfectively competitive markets creates a cut-throat contest among the firms in the competition. Perfectly competitive firms operate with resources that are easily transferable from one industry to another. In essence, the firms are flexible to changes and, therefore, can fit in more than one industry. Studies have shown that most perfectly competitive firms do not operate in one industry for their entire life of