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Differentiating Between Market Structures Essay

1044 words - 4 pages

"The primary debate among economists is not about using markets but about how markets are structured" (Colander, 2008). The structure of a market is comprised by the number of organizations in said market, the barriers to entry to said market, and the interdependence among organizations in how they achieve their goals of maximizing profits. By analyzing the differences of the market structures in the ECON365 week four simulation, the effectiveness of BP's market structure, and how the organizations in each market structure maximize profits, the reader should be able to grasp a firm concept on the differences between the four market structures-perfect competition, a monopoly, monopolistic competition, and an oligopoly.Supply and Demand in SimulationThe Supply and Demand simulation uses the fictional East-West Transportation Company to "describe the differences between market structures a freight transportation industry faces in various markets"(University of Phoenix, 2008). The East-West Transportation Company is divided into four divisions; Consumer Goods, Coal, Chemicals, and Forest Products.First ScenarioIn the first scenario the user must decide whether or not the Consumer Goods Division should shut down or continue operations because of lost profits to monopolistic competition. Choosing to continue operations and lowering the number of hundred weight shipments per million to 6.75 resulted in a minimized lost profit of$150.03 million, which is the point where MR=MC. This scenario identifies with a perfectly competitive market.Second ScenarioThe second scenario begins with announcing the Coal Division's monopoly in the region after its only competitor pulled out. The scenario asks the user to set the price and output of coal. The maximized profit realized for coal was at $7.85 million per short ton. This is also where MR=MC.Third ScenarioThe third scenario revolves around the Chemical Division, which is operating in a oligopolistic market. The industry is fixed, and as the user sets the price, the competitors price fluctuates. When the user and the competitor have equal market shares the profit maximization point of $23.13 million is reached for the East-West Transportation Company.Fourth ScenarioThe fourth scenario is also the last scenario in which monopolistic competition in the Forest Products Division is the market structure. East-West Transportation Company has a competitive advantage in which a special type of railroad car for lumber is created, resulting in a need for a change in quantity charged and output provided. The profit maximization point occurs when MC=MR.Market Structure of BPBP or British Petroleum is "the 5th largest company in the world"(Wikipedia, 2009). The market structure of BP is an oligopoly. Its primary operations are in the oil industry, and as a multinational oil company its competitors are those that are categorized the same. BP must remain competitive by producing and selling gasoline at prices competitive to its...

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