Differentiating Between Market Structures

A downward-sloping demand curve is formed in the form of monopolistic competition. If the average total cost is below the market price, the firm is earning a profit. Meanwhile, if the average total cost is above the market price, the firm is earning a loss. If the price is tangent to the average total cost, the firm is earning a zero profit (breakeven).

In the short run the perfect competition equilibrium can be found by graphing the marginal cost (MC), average total cost (ATC) and marginal revenue (MR) curves. In perfect competition the price is equal to the average revenue, which is equal to the marginal revenue and these are all constant, giving an infinitely elastic demand curve for the firm. The demand curve is “perfectly price elastic” due to the homogeneity of the products supplied, where each supplier, as a price taker, must focus on a single price. Given this, the only choice a supplier has in the short run is how much to produce. For profit maximisation to occur marginal costs (supply curve) must equal marginal revenue (demand curve). Profit maximisation is assumed to mean the maximisation of normal economic profit (i.e. revenue that covers the

Charles, R. Pricing problems in automobile insurance: an economic analysis. Journal of Risk and Insurance

Understanding the fundamental concepts of economics allows us to analyze laws that have a direct bearing on the economy. These laws and theories are essentially the backbone of how economics is used and studied. The law of demand can be expressed by stating that as long as all other factors remain constant, as prices rise, the quantity of demand for that product falls. Conversely, as the price falls, the quantity of demand for that product rises (Colander, 2006, p 91). Price is the tool used that controls how much consumers want based on how much they demand. At any given price a certain quantity of a product is demanded by consumers. As the price decreases, the quantity of the products demanded will increase. This indicates that more individuals demand the good or service as the price is lowered. This can be illustrated using the demand curve. The demand curve is a downward sloping line that illustrates the inversely related relationship of price and quantity demanded.

The team will identify the four market structures, Pure Monopoly, Oligopoly, Monopolist Competition and Pure Competition in the forms of industrial organization.

Business in any city are challenging commodities that produce gain for the population. This city growth is well developed and incumbent by the market structure it abide by. The wisdom of crowds is based on the assumption that valuable knowledge in social systems frequently exists only as dispersed opinions, and that aggregating dispersed information in the right way can produce accurate predictions. A prediction market provides a vivid illustration of the power of the wisdom of crowds. (Qiu, L., Rui, H., & Whinston, A. B., 2014) This outline will break down the various market structures and will clarify all questions pertaining to the business in the city. The business will have to determine what model of market structure they will decide

When figuring pricing strategies within the perfect competition model a firm must consider that the attributes of the product and any cost advantages will eventually be exposed, and will either be mimicked or beaten (Whinston, 1995). Though the perfect competition model is ideal, it is seemingly impossible for a single firm to consistently produce its services and goods at the lowest cost. Thus, the perfect competitor must continuously seek to improve cost management, its production technology, and even the economies of scope. The most effective way to do so is through the cost leadership strategy (Kimmons, 2013). This strategy both requires and allows the corporation to constantly seek ways to further decrease costs, enabling the firm to stay more advanced with leverage over the competition. This process needs to be repetitive, in order to maintain established leverage.

would use their bargaining power to drive down the prices for beef, which would then open the

Ford has five major competitors and they are General Motors Corporation (GMC), Toyota, Nissan, Chrysler and Honda. Below is a comparative market share graph based on the U.S automobile market between the years of 2012-2013.

Firms, in general, tend to produce the quantity which ensures that marginal cost equals marginal revenue in order to maximise profit. This way of deciding the best output applies to both monopolies and competitive firms, though outcomes differ. The total output defines the equilibrium price for the level of consumer demand. The demand curve then indicates price and revenue. Finally, the average cost is worked out to identify the cost and profit for the profit maximising output and consequent price.

buyers to be the same as that of any other firm. This ensures that no

Demand curve focuses on the relationship between the price of a good and the quantity demanded when other factors that could affect demand remain unchanged

The theory of demand refers to the quantity of a product required by buyers. The relationship between demand and price assumes the behaviour of buyers and states that if all other things remain equal the demand for a commodity will decline if the price rises and will increase if the price is reduced. The relationship between price and quantity demanded is depicted by the demand curve which slopes downwards. This part of the theory gives a deeper understanding of how the actual market will react if various prices were charged. Thus, to the business community the demand curve is important as a guide to the direction that should be taken in the future. Analysing the supply/demand model and measuring past behaviour can be a good guide to the future.

The pricing model suggests that at the point where marginal revenue equals marginal costs (MR=MC) the goal is achieved and owner’s profits are maximised (Begg et al. 2011). By further investigating the model (see Figure 1) it is clear the firm wants to produce as much as possible to spread the fixed costs between produced units and yield a profit. Marginal revenue has to be equal with marginal costs because if the MC>MR the cost of every extra unit produced will be higher than what can be earned for it. Logically the price is set at the quantity demanded, but bearing in mind the point where MR=MC. And finally, the firm’s profit would be the difference between average costs and the actual price; TR-TC=profit.

a) In a perfect competitive market, the sole determinant of pricing is the market demand and the supply curves. A demand curve refers to the total amount that consumers will pay for their products. The supply curve is the total amount that the producers can actually make to supply to the company at the price they can afford or are willing to pay. Another factor in a perfect competitive market structure is the equilibrium price which is basically when the supply of the market meets the market demand of the consumers. Anther unique feature of a perfect competition market is that it is a price taker. In essence, this means that the company doesn’t have any influence on the price. Again, this can only be caused through a market that has a large number of firms with identical products. (Samuelson and Marks, 2010).