Essay

Cassandra Murray, Week 4 Assignment Market Structures and Maximizing Profits Market Structures is the number of firms producing identical products which are homogeneous. The interconnected characteristic of a market such as the number and the relative strength of buyers and sellers and degree of conclusion among them, level and forms of competition. There are several types which are Monopolistic competition which is also called competitive market where there is a large number of firms each having a small proportion of the market share and slightly differentiated products. There is also Oligopoly in which a market is dominated by a small number of firms that together control the majority of the market share. Duopoly, a special case of an oligopoly with two firms. Oligopoly, a market where many sellers can be present but meet only a few buyers, perfect competition a theoretical market that features no barriers to entry an unlimited number of producers and consumers and a perfectly elastic demand curve and there is Natural Monopoly in which economies of scale causes efficiency to increase continuously with the size of the firm. The concept of market structure is both economics and marketing. Market structure is important and in that it affects market outcomes through it impacts on the motivation, opportunities and decisions in economic actors participating in the market. The goal in economic market structure analysis is to isolate these affect to attempt to explain and predict market outcomes (McNulty 1968: Broaddus. 1991). Maximizing profits is the short run-long run process by which a firm determines the price and output level that returns the greatest profit and is a process where companies undergo to determine the best output and price level in order to maximize its return. The company will usually adjust influential such as production cost, sale price, and output levels as a way of reaching its profit goals. There are two main profit maximization methods used and they are Marginal Cost Marginal Revenue Method and Total Cost Total Revenue Method. Profit maximization is a good thing for a company but can be a bad thing for consumers if the company starts to use cheaper products or decides to raises prices and with profit maximizing is making the profit as good as possible. There are many characteristic within these market structures. In competitive markets there are four main characteristic. They are a large number of businesses, identical products sold by each business, the freedom to enter and exit out of the industry and perfect knowledge of price and technology. In monopolies there are also four main characteristic which the sellers has full control over the market price of their product. How is price determined in each market structure in terms of maximizing profit, with competitive market, no business has more power than the other. The environmental conditions measure and determine the market structure. The profit maximizing equality between price and marginal cost that a perfect competitive firm moves along its marginal cost curve in response to its price change. I will say that there may be barriers, if there is a single seller in a certain industry and there are not any close. In addition to barriers to entry and competition, barriers to exist may be a source of market power. Barriers to exist are market conditions that make it difficult or expensive for a company to end its involvement with a market. There are three major types of barriers to entry, economic, legal and deliberate. Economic barriers include economic of scales, capital requirement, cost advantages and technological superiority. Economic scale is where range of production, monopolies are characterized by decreasing costs for a relatively large range of production, capital requirement, production process that require large investment of capital or large research and development cost that limit the number of companies in an industry, better to acquire, integrate and use the best possible technology in producing its goods while entrants do not have the size or finances to use the best available technology. Legal barriers legal rights can provide opportunity to monopolies the market of a good. Intellectual property rights including patents and copyright, give a monopolist exclusive control of the production and selling of certain goods. Property rights may give a company exclusive control of the material necessary to produce a good. Deliberate actions a company wanting to monopolies a market may engage in various types of deliberate actions to exclude competitors or eliminate competition. Such as include collision, lobbying governmental authorities, and force. The role that competitive market plays in the economy is when a competitive market is a market with sufficient number of both buyers and sellers such as than no one buyer or seller is able to exercise control over the market or the price. It achieves efficiency in the allocation of scarce, because competition among buyer’s forces buyers to pay their maximum demand price and competition among seller’s forces sellers to charge their minimum supply price for the given quantity exchanged. The role of monopolies play in the economy is because they charge more so they would take money out of the economy that could go to other important things. Monopolies are usually bad for the economy because they restrict free trade which allow the market itself to set the price and because the manufacture has no incentive to innovate, and provide new and improve products. I will say that the monopolies are the only providers so therefore they can set any price they choose regardless of the demand. They can also supply inferior products. The role oligopolies pay in the economy is that oligopolies have both bad and good. The bad are the oligopoly (1) tends to be inefficient in the allocation of resources and (2) promotes the concentration, and thus inequality of income and wealth. Inefficiency, oligopoly does not efficiently allocate resources. Like any firm with market control, an oligopoly charges higher price and produce less output than the efficiency benchmark of perfect competition and with concentration, another bad is that oligopoly tends to increase the concentration of wealth and income, this is not that necessary bad but it can be self- reinforcing and inhibit purist of the microeconomic goal of equity. Then there are two most goods from oligopoly are (1) by developing product innovations and (2) taking advantages of economic of scale. Innovation, oligopoly is the most likely to develop innovation that advances the level of technology expand production, capabilities, and promote economic growth and with economic of scale, oligopoly is also able to take advantage of economic scale that reduce production cost and price.