The paper "Analysis of Economic Principles " is a great example of a micro and macroeconomic assignment. For a perfectly competitive market to exist the invisible hand, as well as the economic forces, work “ unimpeded in the market” (Krugman & Obstfeld, 2000; Krugman & Wells, 2006). Mas-Colell additionally, perfectly competitive markets are defined by the absence of monopoly power and “ universality of markets” . Several features define a perfectly competitive market, and these include the existence of many firms in the market, the production of a homogenous product by all firms in the market, limited barriers of entry and exit into the market, and perfect knowledge by consumers concerning the market and awareness of any changes in the market thereof (Taylor, 2005; Sloman & Sutcliffe, 2002). A review of some of the cold medication available in Australia reveals that there are several manufacturers of these drugs.
Among the major players include Johnson & Johnson through their subsidiaries such as McNeil Industries, McNeil Consumer Healthcare, and McNeil Laboratories, Boehringer Ingelheim, Reckitt Benckiser, GlaxoSmithKline, and Proctor & Gamble Manufacturing Company (Colander, 2003; Economics Association, 2009).
Thus, this market is characteristics of perfect competition, sine while some of these firms are large multinationals, none of them have the market power to determine the prices of cold medications. This market shows evidence of many firms in the market place, an absence of a monopoly, and the sale of homogenous cold flu medications. Additionally, there is limited government intervention in this industry signifying the workings of the invisible hand. Much of government efforts have however been directed to the distribution of drugs and mediation as opposed to the manufacturing and pricing (Graves, Jarvis, & Halton, 2009; Eatwell, Milgate, Newman & Palgrave, 2007). Part b There are economies of scale in cold relief mediation.
A wide body of research spanning for over two decades has suggested that the superior performance of large firms (such as GlaxoSmithKline, Johnson & Jonson and Proctor and Gamble) in the pharmaceutical industry is more resultant of economies of scope rather than economies of scale (Lee, 2009; Kindleberger, 2008).
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