Importance Of Economic Market Structure

3611 Words Aug 3rd, 2014 15 Pages
Importance of Economic Market Structure In today’s economy, before an investor or any organization makes a strategic decision to begin production of a product, a market analysis is done to get vital information and to thoroughly understand the domestic or international demand, current suppliers, entry and exit barriers into a market, and the cost of producing a product or service. From gathering this information a firm can identify the market structure the product will enter, find out potential long-run profitability, survivability, incentives and cost efficiency. In this paper I will describe the characteristics of these four market structures: perfect competition, monopolistic competition, oligopoly, monopoly while providing an …show more content…
It is important to keep in mind that this is a theoretical model. Real data does not exist, and the model does not precisely describe reality.” (Amacher & Pate, 2012) This perfect market is based on assumptions that are used as a model for other markets to be compared to. The assumptions are; large amounts of buyers and sellers, ability to account for changes in the consumer demand, homogenous product, excellent or perfect knowledge, and free entry or exit into the market. In today’s market there is no one firm that can meet all the assumptions listed above but a good example would be farmers. If a farmer produces too much produce it wouldn’t affect the market price. In particular, one field of corn is irrelevant to the entire market. This kind of competition is not price makers they are price takers. Everyone in the market sells the product for the same price. Seeing as every farmer has the same information for growing crops, there is no difference in product which means if someone wanted to sell a bundle of corn for six bucks and everyone else was selling it at five bucks, being in a perfect competition and having a homogenous product, consumers would prefer to buy the less expensive product, so to ensure profitability for the market everyone sells at market price. In short and long run context,
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