Answer:
If the market for your good were to suddenly become perfectly competitive, the following would happen:
Firm's Demand Curve: In a perfectly competitive market, each individual firm is considered a price taker. This means that the firm has no control over the price of the product it sells. The firm's demand curve would become perfectly elastic, meaning it would be a horizontal line at the market price. The firm can sell as much as it wants at the prevailing market price, but it cannot influence the price by changing its level of output.
Perfectly Competitive Equilibrium Price and Quantity: In the long-run equilibrium of a perfectly competitive market, the price (P*) and quantity (Q*) are determined by the intersection of the market demand curve (D) and the long-run market supply curve (LRMC). At this equilibrium, the quantity demanded (Qd) is equal to the quantity supplied (Qs), and there is no incentive for firms to enter or exit the market.
Prospects for Your Small Business in the Long Run: In the long run, your small business would face several implications due to the transition to a perfectly competitive market:
Zero Economic Profit: In the long run, each individual firm in a perfectly competitive market earns zero economic profit, also known as normal profit. This means that total revenue (TR) equals total cost (TC), and there are no extra profits to be earned. For your small business, this would mean that you will not be able to earn above-normal profits in the long run, but you will also not incur losses.
Intense Competition: In a perfectly competitive market, there are many sellers offering homogenous products, and buyers have perfect information about prices and products. As a small business, you would face intense competition from other firms, and it may be challenging to differentiate your product from others since all products are identical.
No Market Power: In a perfectly competitive market, firms have no market power as they are price takers. This means that you cannot influence the price of your product and must accept the prevailing market price. As a result, you must adjust your output and pricing decisions based on the market conditions.
Focus on Efficiency: To thrive in a perfectly competitive market, your small business would need to focus on cost efficiency and productivity. Since profits are limited, optimizing production processes and minimizing costs become crucial for long-term sustainability.
Long-Run Adjustments: In the long run, if your small business is not earning normal profit due to higher costs or lower prices, you may face the risk of exiting the market. Similarly, if your small business has a competitive advantage in terms of cost or quality, you may attract new entrants, which could increase competition.
Overall, the transition to a perfectly competitive market can be both challenging and rewarding for your small business. It may require adapting your strategies to remain competitive and finding ways to differentiate your product or achieve cost efficiencies. However, in the long run, you can expect to earn normal profits and be part of a competitive market where prices are determined by market forces.