Differentiating Between Market Structures Essay

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Differentiating between Market Structures The structure of a market is defined by the number of firms in the market, the existence or otherwise of barriers to entry of new firms, and the interdependence among firms in determining pricing and output to maximize profits. The author of this paper will cover: the advantages and limitation of supply and demand identified in the simulation, the effectiveness of the organization in which the author knows, and how the organizations in each market structure maximizes profits. The simulation looks at all four types of market structure within the East-West Transportation Company. The four divisions operate within each of the four market structures. The divisions are Consumer Goods, Coal, Chemical…show more content…
The Forest Product Division operates in the monopolistic competition market structure. A firm operating in monopolistic competition faces a downward sloping demand curve (University of Phoenix, 2008). The effectiveness of Staples Staples operates in the monopolistic competition. Staples carries many different brands and items within the store. Staples, unlike many monopolistic competition companies are concerned about what the major local competition is doing with their prices. Staples hires an outside company to check the different prices on items that they all carry alike, and then they decide to adjust their price accordingly to the research. Since Staples operates in the monopolistic competition, the demand curve faces in a downward slope. The downward – sloping demand curve means that in making decisions about output, the monopolistic competitor will use a marginal revenue curve that is below price. At its profit-maximizing output, marginal cost will be less than price (The McGraw-Hill, 2004). In the monopolistic competition market structure the competition implies zero economic profit in the long run. If Staples shows a profit then the competition in the market will lower the price to increase their profits and stop Staples. This would continue until the profits disappeared and the new demand curve is tangent to the new average total cost curve. Market Structure Maximize Profits The goal of a firm is to maximize profits, to get as much for
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