Examining the Market Structure of Barbershops

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In these circumstances, the cost structures are not the same as with the competitive industry and so we cannot say that the oligopolistic firm results in higher prices than if a competitive market structure were to be adopted. In fact going along the theory of the downward sloping cost curve we can come to the conclusion that it would be the other way around and consumers would

A major feature of an oligopoly market is that any singular firm has the power to set market prices. This is evident in the example of Coles and Woolworths in Australia as they dominate the market share with 72.5%. Due to there only being a small number of firms, they are able to set their prices and change price and

Since a monopoly is the only seller of a good in the market, the demand curve is the market demand curve. Therefore a monopoly has a downward sloping demand curve, in contrast to the horizontal sloping demand curve of a firm in a competitive market (Mankiw, 2014). Monopolies aim to find the profit-maximizing price for its product. If a firm is initially producing at a low level of output, marginal revenue exceeds marginal costs (Mankiw, 2014). Every time production increases by one unit, the marginal revenue increases again and is greater than marginal costs (Mankiw, 2014). Therefore

There are only a few firms that make up this industry and they have control over the price. These companies have high barriers to entry the market. The products they produce are similar which cause competition. There is both good and bad when it comes to oligopoly and monopolies. Some good things about oligopoly are by developing product innovations and taking advantage of economies of scale. With oligopoly it is more likely to expand production capabilities, promote economic growth, and they develop change that advances the level of technology ("Oligopoly," 2000). Some bad things about oligopoly is that they tend to be inefficient in the allocation of resources and promotes the concentration of income and wealth ("Oligopoly," 2000). They charge much higher prices and end up producing less of an output than the efficiency benchmark of perfect competition. One of the good forms is natural monopoly. Natural monopoly exists when economies of scale encourage production by a single producer (Mayer). An example of this is your local electrical utility. As a power plant increases, the cost per kilowatt hour of electricity falls (Mayer). If we were to all use small generators to run our homes the cost of each household would be ridiculous. The total fixed cost of generators for the community would be high and the variable cost of running it would also be high. Another form of monopoly that is good is

Directions: Identify the letter of the choice that best completes the statement or answers the question. Then mark your response on the answer sheet. Unless otherwise stated, demand curves are negatively sloped and supply curves are positively sloped. The midpoint and point formulae for elasticity are, respectively:

Finally, you may be asking “Are oligopolies harmful or beneficial to the consumer?” There are some economists who view oligopolies as negative, stating that they artificially inflate prices and inhibit healthy competition between companies. They claim oligopolies are one step away from monopolies, and that without restriction placed upon their activities, oligopolists will tend toward monopolistic price fixation. However, these statements are normative, and completely unfounded. The fact is that firms do not strive to be monopolies. They prefer some healthy competition. It keeps them current and innovative, and provides the framework for cutting costs, finding more efficient production methods and developing new products. Most importantly, it keeps them out from under government scrutiny, as a monopoly would be. Consumers benefit from this in the form of lower prices and more variety. In fact, as you look at our current economy, you can see these points supported everywhere. First, the competition

The following figure shows the demand, marginal revenue, and marginal cost curves for a profit maximizing monopolist.

As against his a competitive firm cannot change different prices from different buyers since he faces a perfectly elastic demand at the going market price. If he increases a slights rise in price he will lose the sellers and makes loss. Thus a competitive firm cannot discriminate prices which a monopolist can do.

Price fixing scenarios require two main ingredients to be effective for the companies that attempt them. First, the demand curve for the product or service in question must be sufficiently inelastic such that a decrease in production will raise the price enough to ensure a higher profit level. The second requirement for price fixing is that participating companies must combine for an effective monopoly of the market in question. If two relatively minor companies decide to raise their prices together, this will only result in the rest of the market taking additional share, and the conspirators losing money.

11. (Demand Under Perfect Competition) What type of demand curve does a perfectly competitive firm face? Why?

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27. Explain why the marginal revenue curve for a monopolist lies below its demand curve, rather than coinciding with the demand curve, as is the case for a perfectly competitive firm. Is it ever possible for a monopolist’s marginal revenue curve to coincide with its demand curve?

In oligopoly market, each firm has substantial market power with high degree of interdependence. The key for success in a oligopoly market is to gain more market share than the competitors. Increasing the price can lead to loss of market share to the competitors, so in the oligopoly market, if a firm decreases the price, the other firms will always follow, but if a firm increase the price, the other firms will not follow. The demand curve is kinked.

b) In a monopolistic competition structure, although there are numerous firms, they carry different products. Due to product differentiation, each company is able to somewhat control their own pricing.