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Market Structure Essay

960 words - 4 pages

Untitled

Week 4 - Market Structure Simulation

ECO 365 - Principles of Microeconomics

March 8, 2010

University of Phoenix

Market Structure Simulation

The simulation positioned users of the software as a CEO of East-West Transportation a freight transportation company. The simulation took users through each division of the company, that if which being Consumer Goods, Coal, Chemical, and Forest Products. The simulation aided in the differentiation between the four market structures. It also taught students to identify and interpret cost and revenue curves for each market. The entire purpose of the simulation was to describe the market structures that a freight transportation industry faces within the various markets.

The two staff members had opposing views on shutting down the division and continue by diminishing output. According to the simulation since Profit = Marginal Revenue (P=MR), the reduction of output left it at Profit = Marginal Revenue = Marginal Cost (P = MR = MC). At this point, the given price was $55 per hundredweight. Although at this time the Consumer Goods Division was able to cover variable cost, it was not able to cover fixed costs.

The next situation placed East - West Transportation as the single carrier service of coal on the Eastern Region along with the migration of the only competition. The company became a monopoly, also determined the cost to set to take full advantage of revenue by increased price, and reduced output. In this scenario the profit is initiated to be Marginal Revenue is greater than Marginal Cost. This was a result of the extension of the line past MR=MC. Due to lack of profits the competition withdrew from this business endeavor. The demand curve was well below the Average Total Cost.

The third business venture, which East - West Transportation faced was competition with the Chemicals Division of Far and Wide Transportation. When the newly established competitor began reducing their prices, East - West Transportation lost their position as a monopoly in this region. Any form of judgment acted upon sparked a price war between East -West Transportation and Far and Wide Transportation, a duopoly. During a duopoly it may be risky to anticipate the actions of the competition. As the price for East -West was ease the company's profits were at a maximum...

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