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Differentiating Between Market Structures (Eco365) Essay

787 words - 3 pages

The simulation "Differentiating between Market Structures" allows students to learn real life circumstances in market structures in businesses. A scenario is created using a company by the name of East-West Transportation Inc; different scenarios within the company are given to show different market structures. The simulation focuses on the ability of the CEO of East-West Transportation Inc to study and analyze the cost and revenue curves faced by the freight transportation company. The CEO of East-West Transportation Inc determines through these studies where and how to restructure the different divisions. The CEO focuses on the division's advantages and limitations of supply and demand; the effectiveness of the divisions; and how each division of the firm maximizing profits and minimizing loses.The Consumer Good's Division of East-West Transportation Inc operates as a perfect competitive market. A perfect competitive market structure has "a large number of buyers and sellers" (University of Phoenix, 2008). With this type of market structure, no company controls the market price. The CEO develops the market price to determine the output of production to maximize profits. The CEO, implements the output where MR equals MC. Therefore, the profit maximizes at a point where P equals MR equals MC. The CEO evaluates the study and determines at this point, East-West Transportation Inc will continue to operate. Even with losses at every level of production, the continuation of production allows the company to recover the variable costs but not fixed costs. Shutting down the operations the company would incur losses equal to the fixed costs, which is higher than the continuation of production.The Coal Division of East-West Transportation Inc is a "regional monopoly" (University of Phoenix, 2008). A monopoly structure firm has control over setting prices and therefore, "does not take the market price as a given" (University of Phoenix, 2008). Although a firm is a monopolistic structure, demand plays a large role in the pricing. If prices for transporting coal are too high, then the demand will be low and profits are not high. The Coal Division maximizes profits when MR equals MC. If either one of these, MR or MC falls below one or the other, the CEO makes adjustments to ensure profitability for the division by either increasing production or reducing production. According to Cliff Notes (2000-2008), "In order to determine the profit maximizing level of output, the monopolist will need to supplement its information about market demand and prices with...

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