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Market Structure And Analysis

1113 words - 5 pages

There are a few different market structures, competitive market, monopolies, and oligopolies. According to Mankiw (2007) competitive market, also known as monopolistic competition or “perfectly competitive market” is defined as “a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker” (Pg. 290). In this market structure there are two characteristics: there are many buyers and many sellers in the market and the goods offered by the various sellers are largely the same. Maximizing profits in a competitive market is the difference between total revenue and total cost. There is a distinction between accounting and economic profits: economic ...view middle of the document...

312). In this structure key characteristics are: resources owned by a single firm, government gives a single firm exclusive right, and production costs make a single producer more effective than a large number of producers. Price is determined in terms of maximizing profits by setting higher prices and lowering production. With this method it creates supply and demand. An example of this is when an exotic car with a limited number of cars will be produced. Let’s use the Bugatti Veyron Super Sport, with such limited production, by one manufacture. This creates a higher price for this model compared to another model such as the base Veyron from the same manufacturer. Limited production of a monopolized product increases costs. Since a monopoly has no close substitutes and is essentially a single producer, this structure has “price-setting-power”. While we can’t assume monopolies set prices, they can influence them. Moreover, they are limited by the position of the supply curve. The role of a monopoly in the economy is restrictive. Such monopolies can limit competition and smaller businesses. An example of a monopoly is Comcast, even more so if they merge with Timer Warner. While the government has laws and regulations of such firms from creating monopolies, they can exist. For example when a state or city government grants permission for a firm to create and operate a transit service—this will create what is called government-granted monopoly. Furthermore, monopolies exist, will continue to exist, and can create competition when free market rules are applied. I like to example the I-Phone, while it is highly popular, it has created fierce competition from other manufactures to create and produce more capable and competitive phones—this would be a monopolistic competition.
Oligopolies are between a monopoly and a competitive market. According to Mankiw (2007) an oligopolies is defined as “a market structure in which only a few sellers offer similar or identical products” (Pg. 346). Characteristics of oligopolies are: industry by small number of large firms, firms that sell either identical or differentiated products, or industry that has significant barriers to entry. Such barriers can include exclusive resource ownership, patents and copyrights, government boundaries, and high start-up price. Price is determined in a oligopolies in terms of maximizing profits by set price and output such that marginal revenue an equal marginal cost. According to Investopedia (2013), website “Oligopolies...

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