...Market Structures Adam Timothy Rider ECO204: Principles of Microeconomics Evelyn Carlson 10/13/2014 When trying to gain insight into the local economy it is very important to understand the big picture of how the various market structures relate to each other. This can be accomplished by putting together some of the smaller pieces or characteristic of the market structure. These characteristics can be organizational, competitive or a variety of other features that categorize a firm as a specific market structure. Individual market structures can be described as the amount of firms producing identical goods and services. If you can identify the market structure you can often identify how they firms within the structure are going to price their products in the industry. The market structure will have an effect on the supply and demand of the different commodities in the market. The market structure will also influence barriers for entry and exit in the industry. In order to understand these structures in an economic community you must obtain an understanding of how they all work together to form the economic community. By the end of this report you will possess the necessary knowledge to understand the market structures in the micro economy. Before we begin to the inevitable breakdown of the individual market structures it is important to identify some of the key features of market structure in general. First it would be important to look at the...
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...of output where price equals marginal cost (MC) of producing an extra unit of product. Profit is maximised where marginal revenue (MR) is equal to MC because price is also the MR for competitive firms. Monopoly is the opposite of perfect competition due to a single firm owns and serves the entire market because there is no competition available. There is “only one provider of a good or service, great barriers to entry for seller, no barriers to entry for buyer” (Econ Guru, 2006). This often then leads to high prices and mediocre products being sold, however very unique. Monopolies are price makers because they control the market and their prices are set higher than MC where it is equal to MR in order to achieve commercial profits. Economies of scale is also a source for a monopoly firm as they have more efficient cost of production than larger firms hence a natural monopoly can arise like gas and electricity companies in the UK. Governments however try to control the actions of monopolies such as imposing price controls to protect groups that...
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...monopolistic competition, and oligopoly. These market structures are characteristic descriptors that reflect the strength of buyers and sellers within the market. This writing will examine each of these market structures and identify a company which operates within the market structure. This writing also examines Quasar Computers, a fictitious company in which the authors participated in a software simulation. Throughout the simulation the Quasar evolved through the four market structures. This writing will identify the findings of that evolution through the life cycle of their products and the changes of buyers and sellers over time. Pure Competition In pure competition, a large number of independent sellers of standardized products characterize the market. Information is free flowing and free entry and exit exist. The seller is the price taker and not the price maker (McConnell & Brue). The firm in perfect competition is a structure that demonstrates the market under degrees of completion, given certain conditions. Pure competition is an unlikely scenario and is rare in the real-world; moreover, this market model is significantly important. One can learn from this model, from various markets, such as form agricultural, fish products, from foreign trade, and metals. The text illustrates pure competition as, “a meaningful starting point for any discussion of price and output determination. Moreover, the operation of a purely competitive economy provides a standard,...
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...OLIGOPOLY An oligopoly is a market structure in which a few firms dominate. When a market is shared between a few firms, it is said to be highly concentrated. Although only a few firms dominate, it is possible that many small firms may also operate in the market. Concentration ratios Oligopolies may be identified using concentration ratios, which measure the proportion of total market share controlled by a given number of firms. When there is a high concentration ratio in an industry, economists tend to identify the industry as an oligopoly. Characteristics 1.) There are few competing sellers but they are too large in the size of a giant company. 2.) Products are homogenous, others are differentiated. 3.) Entry of new firms can be very difficult. 4.) There is mutual interdependence among firms in the market 5.) Demand curve for oligopoly is kinked demand curve. Examples - Gasoline, cement, sugar and telecommunication are examples of products of homogenous oligopoly. - Cars and machines are products of differentiated oligopoly. - Oil and telecommunication (Globe, Smart, Sun Cellular) companies are examples of firms operating in an oligopolistic environment. Demand Curve KINKED DEMAND CURVE If the assumptions hold then: • The firm's marginal revenue curve is discontinuous (or rather, not differentiable), and has a gap at the kink • For prices above the prevailing price the curve is relatively elastic • For prices below the point the curve is relatively...
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...number of buyers and sellers, form of competitions, extent of product differentiation, and ease of entry into and exit from the market. Markets are broken down into four various structures. These structures are perfect competition, monopolistic competition, monopolies, and oligopolies. The structure of each market is based on the traits of its business type. The attributes a business will display changes with the number of firms in that particular market. One of the four markets is a perfectly competitive market. This market is an opposite of a monopoly market, because it has many sellers, it has many buyers, and many products that are very similar. Similar products mean their competition is high, as there are many substitutes to choose from close by. Prices in a competitive market are determined by supply and demand, leaving the producers subject to price demands and very little influence; competitors in this market are also known as price takers. No participants are large enough to have the market power to set the price, but both consumers and producers can influence the price. There are very little barriers to entering the market. A perfectly competitive market plays an important role in the economy, as it is the market that carries many necessary items. Firms are assumed to sell where marginal costs meet marginal revenue, where the most profit is generated. Monopolistic competition is another one of the four market structures. In this market, firms produce similar...
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...Market Structure and Maximizing Profits There are four structures that exist within a market. These four are perfect competition, monopolistic competition, monopoly, and oligopoly. I will explain each market structure, and define what they are. I will also discuss how each structure works, and how each form maximizes the companies’ profits. I will also explain how to find the maximum possible price for an object before the company will start to lose money. If the company is not making a profit the company may go bankrupt. The company must pay attention to its market structure along with its own profit margins. The following are some characteristics of a company’s market structure. “These characteristics are: (a) number of firms in the market, (b) control over the price of the relevant product, (c) type of the product sold in the market, (d) barriers to new firms entering the market, and (e) existence of non-price competition in the market” (Sahu, pg.1, 2010) By determining how many companies are in a specific market you can determine the amount of competition there is producing the same product. What the product is will determine if the item is being supplied in a competitive market structure or a monopoly. This will also determine the amount of profits made by the company on the item. There are a few barriers that can hinder a company from entering a market. These barriers are product availability, ownership, patents, and if the company owns the items original location...
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...Industry A Concentration ratios are used to measure the extent of competition in an industry by looking at the total output produced by the largest firms. Although there are several measures in the literature, generally the biggest four and biggest eight firms are considered (Cabral, 2000). A low concentration ratio is regarded as an industry with more competition and firms have very low control. The low concentration can be from 0 to 50 per cent and the industry can have a structure ranging from perfect competition to oligopoly. Since in industry A there are 20 firms and the CR is 20 per cent, it can be deemed as a low ratio. Therefore, the industry is a perfectly competitive one with a lot of firms competing with each other, and no one firm controls a big chunk of the market. A perfectly competitive industry has many buyers and many sellers, also the products are quite standard and resemble to each other (Microeconomics: The Basics). The number of sellers makes it impossible for any single firm to control the market and the price is determined by the demand and supply conditions. Since the products are very similar or identical to each other, the buyers can switch from one good or service to another when there are price differentials. Additionally, the barriers to entry and exit are quite low; hence firms can easily enter and leave the industry. As a result of all these features, the economic profits are zero and maximum efficiency is achieved. Nevertheless, the pure perfect...
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...Course: - Edexcel HND in Business Module: - Business Environment Assignment Prepared by: Lecturer: Mr Term: Sepember-December2012 Course Start date: September2012 (Birmingham Central Campus) Introduction: This Assignment is about Business Environment and I have to complete the flowing tasks for the purpose of the assignment: Task 1 1. Types of Business Organisations, their purposes: There are three main types of Organisation in UK A) Private sector organisations. B) Public sector organisations. C) Voluntary sector organisations. The main types of Business organisation in the Private Sector is: The Sole trader: A sole trader is a business that is owned by one person. It may have one or more employees. It is the most common form of ownership in the UK. (e.g. Window cleaning, and Plumbing, etc.). Nowadays lots of people are setting up their own businesses by creating small web-based companies working from home. The Partnership: In a partnership, partners are personally liable for the debts of the business, although partners in a limited partnership (not to be confused with a limited liability partnership) who play no part in the management of the business, may have a limit on their liability set out in the Partnership Deed.. Companies: are owned by shareholders that each contributes a stock of money into a central pool. This pool of...
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...perfect market has a horizontal marginal revenue curve. Monopolies are firms with a majority share in the market. Monopoly firms set the price because there is less competition and high barriers to entry/exit because of the high start up costs into the industry. So the demand curve is downward sloping because they set the price so to attract more demand they can lower the price. In a perfect market the demand is perfectly inelastic because consumers have perfect information meaning that if a firm increases the price, demand will go down due to lots of competitors and low barriers to entry, so firms in a perfect market are price takers. 2. Explain why prices in oligopolies remain fixed in the long term. An oligopoly is where a few large firms have a majority of the market share. Prices in oligopolies remain fixed in the long term because if a firm lowers in the price, all companies will follow because demand is price elastic. Thus meaning that revenue will go down for each company. So due to price collusion the businesses each agree on a fixed price and instead compete with non financial methods instead, to prevent losses of the revenue. 3. Explain why a monopoly can achieve supernormal profits and a firm in a perfect market can only achieve normal profits. Monopolies are firms with a majority share in the market, usually 25% or more. They can achieve supernormal profits because there are extremely high barriers to entry/exit into the market due to high start...
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...Differentiating Between Market Structures Differentiating Between Market Structures The “Differentiating between Market Structures Simulation” applied all four of the market structures to four major divisions of a fictitious transportation company called as East-West Transportation. The four divisions for the various products they transport are Consumer Goods Division, Coal Division, Chemical Division, and Forest Products Division. This paper will summarize the advantages and limitations of supply and demand, the effectiveness of structure, and will analyze how each market structure maximized their profits. The market structures represented in this paper are Perfect Competition, Monopoly, Oligopoly, and Monopolistic Competition. Perfect Competition According to the simulation the Consumer Goods Division operated in a market that perfectly competitive. There were several buyers and sellers, each of the sellers being a price taker and there were no barriers to entry. The limitations or advantages of the Consumer Goods Division are as follows. The competition is high so the demand for their service will be low. Continuing to supply this service would mean the company would have to spend more on improving the quality of its service so as to maintain and increase the demand. In the simulation, the first decision made was whether to cease operations in the Consumer Goods Division or to continue operations and minimize any losses. Monopoly The second scenario in the simulation...
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...Influence of Math on Economics Michelle Balmer, Marcie Holland, Beverly Segars, Israel Figueroa, and Porshia Cross MTH 110 Rigoberto Martinez March 17, 2012 The Influence of Math on Economics The history of mathematics is an investigative study of the discoveries of mathematics methods and notations from the past. The study of mathematics began in the 6th century BC with the Pythagoreans who coined the ancient Greek term mathematics with the meaning subject of instruction. Before the spread of knowledge, mathematics was written expressions of the development of Babylonian, Egyptian, and Pythagorean Theorem, which demonstrate the basics of arithmetic and geometry. Arithmetic is one of the oldest forms of mathematics used by Antoine-Augustin Cournot and Joseph Louis Francois Bertrand for tasks of simple day-to-day counting to science and business activities. Arithmetic involves the study of quantity as it relates to addition, subtraction, multiplication, and division. Mathematicians refer to the more advanced term of number theory. Antoine-Augustin Cournot and Joseph Louis Francois Bertrand’s influence on mathematics lay the foundation of the economic effect of the application method on economic theory and analysis of how it will affect others. Each allows individuals to form a meaningful understanding of the complex expressions in various languages. Cournot and Bertrand have used the importance...
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...Re-Write in your own words Differentiating between Market Structures . ECO 365 March 7, 2016 Differentiating between Market Structures Swift Transportation Company Introduction The trucking industry in the US is an indispensable network service in the US as it is the most important carrier of freight. Nearly 70% of total freight movement in the US takes place through trucks (ATA, 2016). It consists of 3 million heavy duty trucks that carry around 9.2 billion tons of freight annually as per current statistics. A large number of big and small companies have their transport operating system in this industry. The market is segmented into two parts, the Truckload (TL) that carry full capacity load from one point to another and does not reload en route, and the Less-Than-Truckload (LTL) which consists of smaller carriers that carry less amount of load compared to TL and operates in the regional network (Parming, 2013). In this paper we are going to study the operations of the second biggest trucking company in the US, the Swift Transportation Company Inc., in terms of its market structure and related strategies. Brief Description of the Company The transportation company was founded in 1966 by Carl Moyes and his sons Jerry and Ronald in Phoenix Arizona (Reference for Business, 2016). Presently it operates in the USA, Mexico and Canada. It covers whole of USA and is the second largest trucking company in the US. It operates both in the TL and LTL segment. The company...
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...everything stays fair. According to the Department of Economics and Finance Chair of Law and Economics, “antitrust can be considered a form of economic regulation done by governments over economic activity of undertakings. Antitrust regulations and competition laws are primarily made in order to assure sound competition in each segment of the broader market, protect consumer welfare and avoid abuse of market power by dominant firms.” (Grillo, Renda, 2014) When one single company controls a big enough portion of the market share of a product or service that it affects significantly the terms on which others have access to it, it is deemed a Monopoly market structure. If a group of firms does the same, it is referred to as an oligopoly market structure. “Oligopolies and monopolies may maintain their position of dominance in a market because it is too costly or difficult for potential rivals to enter the market. Obstacles to entry are called barriers to entry.” (Grillo, Renda, 2014) This doesn’t go over well in today’s society, which is what antitrust laws are for. One company lately has been getting many accusations of infringing said laws and causing quite a stir. “Google has been accused of giving priority to its own specialized search services over other competitors, using third party original content without sharing its revenues, and without receiving permission to take it, obligating advertisers to use only its AdWords platform and not competing ones, as well as imposing on third...
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...the goods that are offered mostly the same. Because there are many buyers and sellers that offer the same good there competitive markets have no real impact on market prices. Buyers and sellers can increase their selling price, but consumers will go somewhere else to get the good cheaper. This happens when there are many companies that sell the same product. Maximizing profits would have to come internally, selling more product is the only way to increase profit because the market price is constant. One barrier that competitive markets face is that they have to take the market price as it is given. There are so many others that sell the same type of good the price is more constant and one company cannot make the market price increase. The economy needs competitive markets so that most people can afford goods. If all goods were made by monopolies there would be less competitive pricing and consumers would buy less. The output is determined by market conditions not by what a competitive market would like to sell for. Competitive markets are small, numerous and there are similar items that can be bought. A monopoly is when a company is the sole seller of the good and there are no close substitutes for that good. This happens because other companies cannot enter the market and compete with other organizations. To be a monopoly the good is owned by a single company and that company has exclusive rights given to them by the government. Production costs are more efficient when a single...
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...OLIGOPOLY, CHARACTERISTICS: The three most important characteristics of oligopoly are: (1) an industry dominated by a small number of large firms, (2) firms sell either identical or differentiated products, and (3) the industry has significant barriers to entry. These three characteristics underlie common oligopolistic behavior, including interdependent actions and decision making, the inclination to keep prices rigid, the pursuit of nonprice competition rather than price competition, the tendency for firms to merge, and the incentive to form collusive arrangements. Small Number of Large Firms The most important characteristic of oligopoly is an industry dominated by a small number of large firms, each of which is relatively large compared to the overall size of the market. This characteristics gives each of the relatively large firms substantial market control. While each firm does not have as much market control as monopoly, it definitely has more than a monopolistically competitive firm. The total number of firms in an oligopolistic industry is not the key consideration. A oligopoly firm actually can have a large number of firms, approaching that of any monopolistically competitive industry. However, the distinguishing feature is that a few of the firms are relatively large compared to the overall market. A given industry with a thousand firms, for example, is considered oligopolistic if the top five firms produce half of the industry's total output. The hypothetical...
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