Market Structures and Maximizing Profits
/XECO/212 Principals of Economic
In this paper I will discuss competitive markets, monopolies, and oligopolies and what role each of these plays in an economy? I will also point out:
o What the characteristics of each market structure is?
o How the price is determined in each market structure in terms of maximizing profits?
o How output is determined in each market structure in terms of maximizing profits?
o What are the barriers to entry, if any?
o What role does each market structure play in the economy?
First I would like to discuss what a competitive market is. This market has a large number of buyers and sellers, such ...view middle of the document...
In the competitive market some of the characteristics are the market size, number of competitors & levels of fragmentation, intensity of competition, capital requirements, seasonal and cyclical factors, social, political, regulatory and environmental factors are some of the characteristics of the competitive market. Some characteristics of monopolies are that it is a single seller of a good for which no substituted is not available. Most monopolies are also used to create legal barriers. Some characteristics of oligopolies are the small number of firms let oligopolies set prices and output levels, to some extent. However, because there are other rival firms, oligopolies must take note at how they react to its change in price, output, product or advertising. Strategic Behavior: self-interested behavior that takes into account the reactions of others. Mutual interdependence: profit doesn't depend entirely on its own price and strategies. The profit maximization is a point where the price is at a level where one finds a balance between demand and supply and price below or above this point will cause an increase in demand or increase in supply respectively. When you want to maximize the profit in the market you need to figure out which one of the firms or companies can produce the most to be cost effective and meet the demand level that returns the greatest profit.
Now, when it comes to profit we must look at barriers to entry that control the market by limiting competitors and any type of substitute. There are four primary barriers to entry resource ownership, patents and copyrights, government restrictions and start-up costs. Barriers to entry are a key reason for market control and the inefficiency that results. In particular, monopoly, oligopoly, monopsony, and oligopsony often owe their market control to assorted barriers to entry. By way of contrast, perfect competition, monopolistic competition, and monopsonistic competition have few if any barriers to entry and thus little or no market control (AmosWEB).
Lastly we will look at the role each market structure plays in our economy. The competitive market...