Market_Sturcture

Market Structure XECO/210 Market structures consist of various characteristics of particular markets, including their dimensions and worth, the amount of providers and their market share, the purchasing behavior of actors in the market, and growth forecast. This paper will detail the many facets involved in market structures and the necessary factors involved in the potential for maximizing their profit. With the many speculative market structures to explore, it will be of significant interest to untangle the theories for each: competitive markets, monopolies, and oligopolies in efforts to clarify the understanding of how actual markets operate in an economy as each has the specific goal of maximizing profits through interactions in the wonderful world of supply and demand. A monopoly consists of a single seller and in this case a single business is the industry. This type of market is typically inaccessible because it is either too pricey and or involves several challenges that makes it next to impossible. Some may be political, economic, or social. For example, the government controlling power and as a result they have sole control with individual rights over this resource. Another example is that a company can have a patent on their product that restricts others from profiting such as Pfizer had on Viagra. In a monopoly price setting is determined by the market demand. The reason being is if they were to increase the price of their goods, consumer demand would decrease but if the monopolist lowers the quantity of the output it sells the price of its output increases. Naturally they would favor charging a substantial amount for their good and furthermore sell a great amount at that price but because the firm faces the market demand curve it is impossible. In a monopoly, to produce one good means that it can sell at a higher price but once additional goods are produced means that the price has to drop for more to sell. The primary thing here is that the monopolist wishes to maximize profit, therefore, the goal is to expand production to a level where the marginal cost is equivalent to the marginal revenue. Of course, this harms the consumer and consequently consumers are less willing or incapable of trade in the market so fewer units are bought and sold. Nevertheless, monopolies can potentially dominate the economy because of the wealth accrued through such huge profits. On the other hand, there is the Oligopoly which has fewer firms and each has specific influence over the market. They are price setters as oppose to a competitive market that are price takers. Similar to a monopoly, it also encounters challenges that restrict entry ranging from economics of scale, copyrights, excess to expensive and complex equipment, and deliberate actions to discourage them. These are obstacles that are intended for the purpose of preventing others from gaining entry into the market collect on excess profit. The majority of the product made by these particular firms is indistinguishable since they are all in competition for market share, makes them interdependent due to the market forces. For example, If the economy calls for a 50 of a particular unit and one company produces 25 and another company produces the other 25, then the cost for the two brands will be comparable. However, if one of the two companies’ decides to sell their brand at a lower price, the company will collect a larger market share. This behavior will force the opposing company to cut their price as well, this type of interactions amongst firms is known as cooperatively making decisions in the market. While there are various oligopolies that partake in the attempt to form agreements or conclusions on pricing and production strategies, but they usually fail because of anti-trust laws and policies. Production is a strong factor to maximizing their profit because an increase in production means to suffer reduction of their product. The price is equivalent to the marginal cost; in addition it is less than the monopoly price however greater than the competitive market. In actuality, when a firms outputs is higher than the price it forces production to increase but when the price is great than output, production therefore declines. The more stable the oligopoly means that the enormity of the price slopes however it then becomes a competitive market. In conclusion, oligopolies practice selecting prices and production that will capitalize on profit. These markets will use various strategies to gain market shares such as committing to distribution time frames as well as negotiating low rate service contracts. They tend to offer around the clock support to their customers and even discounts on product promotions. All in which have both negative and positive effects on the economy. On one hand, oligopolies aids with strengthening the growth of the economy but on the other hand they thrive off dominance which tips inflation. A market that has both, many buyers and sellers is known as a competitive market and the goods traded within this group are merely the same but unlike monopolies and oligopolies there is minimal restrictions to enter and exit. For this very reason sellers and buyers can negatively impact the market price. The result of this market structure is conditions for which buyers and sellers are known as price takers because the market determines the price in which they must accept. This price is solid regardless of how much a company produces. In this market total revenue less the total cost is how profits maximize. The first step in examining how this is done is to gage the revenue. In a completive market, marginal revenue is equivalent to the price of the good and with the goal being to maximize profit; a company will therefore increase production only if the marginal revenue exceeds the marginal cost. However, if this works in reverse meaning cost is more than marginal revenue the company will need to lower production in order to maximize profit. Competitive markets impact the economy far better than any other because they influence innovativeness and productivity by warranting that the economy’s resources are utilized to the highest aptitudes. In conclusion, these factors provide the different types of market structures and characteristic of each one that reveals how likely it is that these markets work as it relates to the economy.