| |
|Market Structures Table and Questions |
| |
| |
|Colleen Nickerson |
| |
Market structures are the amount of firms in the current market, the barriers to entry for new firms, and the independence of firms determining pricing to increase and maximize total profits. This paper will cover the following: price determination and output determination in each market in terms of maximizing profit, barricade of entry, the characteristics of each market structure, and the role each market structure plays in the economy. Four elements that I will also cover and discuss are: monopoly, oligopoly, competitive markets, and monopolistic competition.
Each market structure has a different outcome due to certain characteristics which makes some markets more desirable than others. To determine where you fit in the world of market structures depends on what your competition, oligopoly, monopoly, or what your key principle and financial ability is. The total number of firms that supply a certain product in the market determines to what extent the industry competitions exceeds. The characteristics are the number of firms in the market, type of product sold in the market, control over the price of the relevant product, barriers to new firms entering the market, and existence of non-price competition in the market. The ultimate goal of any firm is to maximize its profits.
The Term Paper on Stock Market Firms Banks Financial
The question touches to two important and obviously interrelated issues, that of the need and form of corporate control and that of the role of the financial system in resource allocation. During the last two decades the Modigliani - Miller proposition which stated that there is no relationship between corporate capital structure and the real performance of firms, has been increasingly disputed as ...
A competitive market, otherwise known as a perfectly competitive market, has two distinct characteristics. The first characteristic is that there are many buyers and sellers in the current market trading identical products. The second characteristic is that the goods offered by the sellers are relatively the same. Both the buyers and sellers in a competitive market must accept the price that the market sets. Therefore, both the buyers and sellers are considered to be price takers (Mankiw, n.d.).
For example, take doughnuts. No firm and or single person can influence the price of doughnuts because compared to the size of the industry, each amount purchased is relatively small. If a local convenient store increases the price of their doughnuts by 25 cents and another convenient store two miles down the road does not increase the price of its doughnuts, the store that decided to raise its price will start to see a decrease in their profit on the doughnuts because they increased their price by 25 cents. On the other hand, the store that kept their doughnuts the same price will actually see an increase in their profit on the doughnuts because they will acquire new buyers in addition to their old buyers. This is because most people are willing to drive two extra miles to save 25 cents.
A monopoly is when a firm has sole ownership over a product that does not have a substitute that is relatively close to that product. An example of this is the product Windows by the company Microsoft, as we learned in our textbook. Microsoft holds sole patent ownership over the program Windows, which was given to Microsoft by the government. If a person wants the Windows program they are forced to buy it from Microsoft. Since there is only one seller of Windows, the patent owner, other companies are unable to compete in this market. This creates a barrier to entry. A monopoly is created when a firm that owns a certain resource in the economy has no other firms that produce a product in comparison to the original product. The firm having the monopoly is able to price its product at whatever price they want since they have no competition from other firms. This gives the firm with monopoly the power and ability to set high prices for their product. The price charged by a monopolist is higher than the marginal revenue, at any output level (Competition, 2007).
The Essay on Prices Unfortunately With All The Merges Market Competition Monopolies
... example, Bus Lines MONOPOLY = a market structure example, Northeast Utilities Characteristics: No Close Substitutes Inelastic product One seller, many knowledge high ... pulse on the market) Price wares - way of getting market share Increase cost of entering the market May use GAME ... price decrease. A price drop will cause a KIND DEMAND CURVE, page 627 Concentration ratio = sum of the largest 5 firms ...
A monopoly is able to influence the price of its output and its revenue will depend on the need and desire for the product.
Within a monopoly is also what is known as natural monopoly. This is a monopoly that comes about because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms (Mankiw, n.d.).
Examples of this would be the distribution and supply of water. In distributing water all firms would have to run their own piping to each individual home and business, which would be high in costs. If there were a fewer firms that did this the cost of water would be high. Since it is cheaper to have just one firm supply the demand of the market the average cost of water is lower.
Monopolistic competition is a market structure in which numerous firms sell products that are similar, but not identical (Mankiw, n.d.).
In this type of market structure there are many firms focused on one group of customers and are considered price makers instead of price takers. There are many sellers and many buyers. An example of product in this type of market structure would be books. The barriers of entry to this market structure are fairly easy because anyone can write a book and find a firm to market it. There are many firms that compete with each other to market a book.
The Research paper on Emirates Dates And How To Market The Product In (Sweden)
There are various strategies of expanding one’s business. The decision of which strategic move to choose is generally depends on internal conditions of the business in discussion. There are companies that manage to stay in their local markets and continue to harness growth from it, while others discover potential markets in foreign countries that drive them to expand. In the case of business ...
In between competitive and monopoly lies what is known as oligopoly. Oligopoly is when there are only just a few sellers for a similar or identical product. An example of this would be toilets. There are a limited amount of sellers of this product, so they determine the price of the product. If an oligopolistic firm changes its price or output, it has perceptible effects on the sales and profits of its competitors in the competing industry. An oligopolistic firm always considers the reactions of its competitors in calculating its pricing or output decisions (Competition, 2007).
Entering a market of this choice can be very costly, ranging from the financial requirements to patents and copyrights. Prices in this type of market structure usually remain stable for long periods of time. This is because if a firm decreases their prices, their rivals will typically decrease their prices accordingly. If a firm increases their prices, their rivals may not necessarily increase their prices.
The barriers of entry in an oligopoly market structure are very high. This is largely due to the high cost of the initial investment and production of their product. A monopoly the barriers to entry are basically blocked from outside firms. This block is normally instituted by law.
References
Mankiw, G. (n.d.).
Principles of economics (4th ed.).
Cengage Learning
Competition (2007).
Retrieved April 8, 2011, from http://www.referenceforbusiness.com/encyclopedia/Clo-Con/Competition.html#CHARACTERISTICS_OF_A_MARKET_STRUCTURE
