Differentiating Between Market Structures

1766 Words Aug 25th, 2010 8 Pages
Differentiating between Market Structures
Jessika Canales Díaz
ECO /365
Instructor: SR. Carlos Méndez David

Differentiating between Market Structures
In this simulation, the learner studies the cost and revenue curves in different market structures perfect competition, monopoly, monopolistic competition, or oligopoly faced by a freight transportation company, and makes decisions to maximize profits or to minimize losses. The simulation also deals with the concept of Prisoner’s Dilemma and the price war scenario in a duopoly. Road, railroad, air transport, and water transport are crucial to a country needs. Food farm products, consumer’s goods, raw materials for industry coal for electric lumber for constructions,
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Though the market demand curve is downward sloping, each seller perceives the individual demand curve facing them to be perfectly elastic at the given price. Given this demand curve and their cost structures, sellers try to produce an output at which they can maximize profits.
Profit is maximized for each seller at the output where marginal revenue (MR) equals marginal cost (MC). This is the output at which the difference between total revenue and total cost is the maximum. In perfect competition, price equals marginal revenue for each seller. This is because the fixed price per unit is the revenue for each seller. This is because the fixed price per unit is the revenue that the seller can expect to earn by selling an additional unit of output. Thus, the profit-maximizing condition becomes PMR=MC. Given the Consumer Goods Division’s cost structures, you are incurring losses at every level of output you can produce. However, you are still able to recover your variable costs by continuing operations. If you were to stop production, you would incur losses equal to your fixed costs, which are higher than if you were to continue production. Therefore, it is better for you to continue operations. You will notice that the average variable cost (AVC) curve lies below the price for most output levels, while the average total cost (ATC) curve lies above the price. This shows that at the market price, you are able to cover your variable costs, but not your fixed costs. If