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Differentiating Between Market Structures Essay

1019 words - 4 pages

The structure of a market is defined by the number of firms in the market, the existence or otherwise of barriers to entry of new firms, and the interdependence among firms in determining pricing and output to maximize profits. This paper will cover the advantages and limitation of supply and demand identified in the simulation, the effectiveness of the organization, and how the organizations in each market structure maximizes profits.The simulation looks at all four types of market structure within the East-West Transportation Company. There are four divisions that operate within each of the four market structures. The divisions are Consumer Goods, Coal, Chemical and Forest Products.In the first scenario, the decision must be made whether to continue operations or shut down operations. After completing the simulation, it pointed towards continuing with operations in a perfect competition market. In the scenario the market demand curve is downward sloping, each seller perceives the individual demand curve facing him or her to be perfectly elastic at a given price. Given this scenario this demand curve and the cost structures, sellers try to produce and output at maximized profit.The second scenario has the company looking at the coal division, which operates in the monopoly structure. Tanya Roy pointed out that the law of demand holds in a monopoly. At a high price, quantity demanded is high and profit would not need to be high. For a monopolist, price exceeds marginal revenue. Thus, at the output where Marginal Revenue = Marginal Cost, you extend the quantity line to the demand curve to determine the price to charge for this output. The demand curve is facing in a downward slope in the monopolist structure.In the third scenario the market structure is oligopoly- duopoly in the Chemical Division. The industry marginal cost curve is combined with the industry demand, which is downward curve, and marginal revenue curves.The last scenario the company is working in the Forest Product Division. The Forest Product Division operates in the monopolistic competition market structure. A firm operating in monopolistic competition faces a downward sloping demand curve (University of Phoenix, 2008).Officemax operates in the monopolistic competition. Officemax carries many different brands and items within the store. Officemax, unlike many monopolistic competition companies are concerned about what the major local competition is doing with their prices. Officemax hires an outside company to check the different prices on items that they all carry alike, and then they decide to adjust their price accordingly to the research. Since Officemax operates in the monopolistic competition, the demand curve faces in a downward slope. The downward - sloping demand curve means that in making decisions about output, the monopolistic competitor will use a marginal revenue curve that is below price. At its profit-maximizing output, marginal cost will be less than price (The...

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