Accounting Firm
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1. Is an accounting firm operating in a perfectly competitive market? Why or why not?
2. If the owner of the company ( accounting firm) asked you to assess whether or not they were using the optimal amount of an input (given a set price for that input), what economic criterion would you use in your analysis?
3. If you were asked to assess the economic profitability of the accounting firm, what economic tools would you use in your analysis?
4. What is the elasticity of demand for the product (or one of the products) that is produced by the company? Given this elasticity of demand, how should the company price their product in this market? Give justification for your answer.
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The solution goes into a great amount of detail about an accounting firm in a competitive market. The responses are excellent and very well written. Overall, a great response.
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1. Is an accounting firm operating in a perfectly competitive market? Why or why not?
Answer: In my opinion an accounting firm does not operate in a perfectly competitive market. For a perfectly competitive market, a firm must be producing homogenous goods or services. Accounting firms do not produce homogenous services. Each accounting firm tries to differentiate itself in the market by providing services that are different from its competition. Brand image and reputation is also highly important. Another criterion for a perfect competition is no barriers to entry or exit. This is definitely not true with this industry. Accounting firms have well established relationships with its customers and thus it makes it extremely difficult for a new company to come in and take away market share from the accounting firms. Accounting firms also pride themselves on its human capital which is extremely difficult to acquire. ...
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