Eco 561 Week 3 Quiz Essay

d) Break even sales change that would change the profits by the same amount as a reduction in price.

23. A firm participating in a competitive market with costs described in the table below would always shut down:

C) there are many buyers and sellers, and each is large relative to the total market.

a. The company wouldn’t produce replicas and change their business model (sales are still increasing roughly 20% each year)

a. We were already lagging behind the market to begin with. Unless we give an increase in the basic

a. The product is identical (ie, aluminum), all the companies procure the same resources to make production with same production line and process. The firms only differentiate in terms of controlling and lowering the variable cost in order to make a profit as a price-takers. Pricing is somehow fix in global level as aluminum is openly traded in the financial market.

(d) Price war is not beneficial for BPS since firstly it cannot sustain it and secondly it will shrink the market pie to an extent that BPS will not be able to command premium over its products.

To increase revenue, firms look to increase price or quantity, as price multiplied by quantity equals total revenue. Purely competitive firms can sell as much as they want at the market price. Adding additional units of the product does not result in a change in the market price. Therefore, since purely competitive firms do not influence price, they increase total revenue by increasing quantity.

The structure of a market is defined by the number of firms that are competing in that market, along with factors such as: the ways in which these firms are alike or different, and the obstacles that exist in any new firms entering that market. In this report I will discuss Competitive Markets, Monopolies, and Oligopolies. I will point out what role each of the market structure play in the economy. This report will list

A market structure in economics describes the state of a market with respect to its competition. There exist several different market structures like perfect competition, oligopoly, and monopolies among others. These markets all produce different types of goods or services, like public and private goods as well as common and collective goods. Firms operating in these different market structures utilize the labor market in very different ways because of very diverse uses of labor in each market structure, so it is important for a firm to use the labor market equilibrium principles to their advantage

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.

There are four basic market structures, each determined by the number of firms in the market and the dynamics of competition. They are perfect competition, monopoly, oligopoly, and monopolistic competition. (Flynn, n.d.)

In the demand analysis for the product of this particular firm, we have found that the price elasticity of demand is 1.2. This implies that with a 1% rise in price, quantity demanded falls by 1.2%. Therefore, the expenditure on the good remains almost the same. The firm cannot hope to increase market share by decreasing the price. The revenue earned by the firm will remain the same whether it increases or decreases the price as the demand is almost unitary elastic. There is a fair amount of competition. The elasticity with respect to the price of the close competitor’s product is 0.68. This is less than one. With 1% increase in price of the competitor’s product, there is a 0.68% (<1%) increase in demand for the incumbent’s product. That means the demand for the product is not very sensitive to change in the price of the close substitute. This interpretation of the cross elasticity points to the existence of significant differentiation in the product. Even with a fall in the price of the close competitor’s product, the demand does not fall to a large extent. The two elasticities point to the fact that there is a preference for the firm’s product. The discussion above suggests that the market is characterized by monopolistic competition. There is limited scope for price competition. The firms mainly compete through advertisements and product-differentiation.

c) The additional price paid to a monopolist is thus a transfer to the monopolist, not a benefit nor a

According to McConnell and Brue “Economists group industries into four distinct market structures: pure competition, pure monopoly, monopolistic competition, and oligopoly. These four market models differ in several respects: the number of firms in the industry, whether those firms produce a standardized product or try to differentiate their products from those of other firms, and how easy or how difficult it is for firms to enter the industry” (McConnell & Brue, 2005, chap. 21). As part of the MBA/501 course the learning team is tasked with identifying a company for each market structure, and describe the pricing