Perfect competition

Workshop

Olive Grove has recently had word from her aunt’s solicitor advising her that Aunt Maude has passed on but has bequeathed to Olive her orchard on the central coast. Being at a loose end (jobs are in short supply!), Olive decides to try her hand at being an orchardist.

Valencia Park turns out to be a small sized citrus orchard. There are a large number of other citrus farms in the area. All the farms grow the valencia variety and the produce is delivered to the wholesale fruit market in Sydney. Olive could expect to sell any quantity of oranges that she delivered to the market at the going wholesale price. Olive thinks that earning a living from the orchard may be tough but she’s not afraid of a bit of hard work.

7. From the description above, what characteristics of the perfectly competitive firm does
Olive’s orchard satisfy? Tick the appropriate boxes in the table below.
Table 2

Characteristic of Perfectly Competitive Firm Olive’s Orchard Large number of firms yes Large number of buyers ?? Standardised product Yes Freedom of access to information Yes Ease of entry and exit Yes

8. Why does Olive suspect that ‘earning a living from the orchard may be tough’?

LARGE NUMBER OF COMPETING FIRMS HOMOGENEOUS PRODUCT
PRICE TAKER (a seller (or buyer) of a commodity that is unable to affect the price at which the commodity sells by changing the amount it sells (buys), NO MARKET POWER ( ability of a firm to alter the price of a product or sevice)

9. An examination of the accounts reveals the cost data as shown in Figure 6. The total costs include a fixed cost of $230 representing the six month’s lease on a nearby packing shed.

The wholesale price per tonne of Valencia's varies considerably from week to week. Olive estimates that she will be willing to supply the following quantities depending on