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East West Transportation Inc Market Structure Simulation

1207 words - 5 pages

Market Structure PAGE 1
East-West Transportation Inc Market Structure SimulationUniversity of Phoenix OnlineDecember 1, 2008East-West Transportation Inc Market Structure SimulationThe simulation offered by the University of Phoenix in conjunction with the Principles of Microeconomics focuses on real life situations in market structures of firms. The scenario creates a distinction of market structures within a single corporation. The East-West Transportation Inc illustrates four different types of market structures within the firm. The divisions of the firm, which create the different market structures, are Consumer Goods, Coal, Chemicals and the Forest Products. Market structures, for ...view middle of the document...

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. Maclachlan (2008), "The marginal revenue for a perfectly competitive firm is the market price determined by the intersection of the supply and demand curves" (¶1). 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, ¶8). A monopoly structure firm has control over setting prices and therefore, "does not take the market price as a given" (University of Phoenix, 2008, ¶8). 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 data on its costs of production for different levels of output" (¶2).The Chemicals Division of East-West Transportation Inc is an oligopoly or as noted in the simulation as a "duopoly" (University of Phoenix, 2008, ¶11). In a structured setting as oligopoly, prices are set to maximize margins based upon the other competitions prices. These prices are set from competitions current period and strategically planning how this competition will price according to East-West Transportation Inc pricing. The pricing of products or services in this market structure affects market shares and profitability for the individual companies. If one particular organization or firm undercuts the prices of the other firms, this creates a price war and struggle between the companies and ultimately ends in "a lose-lose situation for both firms" (University of Phoenix, 2008, ¶11).The Forest Products Division of East-West Transportation Inc is a monopolistic competition market structure....

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