Importance Of Economic Market Structures

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Importance of Economic Market Structures Before an organization or investor makes a strategic decision to enter a product in today’s economy, a thorough market analysis is vital to fully comprehend the domestic and international demand, current suppliers, entry and exit barriers present, and cost of production for the product or service being provided. The culmination of this investigation identifies the market structure the product resides in, associated potential long-run profitability, cost efficiency, survivability, and incentives for future entrepreneurs. This paper will describe the characteristics of four such market structures: perfect competition, monopolistic competition, oligopoly, monopoly while providing an illustrative…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) The perfect competition model is based on defined assumptions which prevent its adaptation into a real-life economy; however it is often described as the baseline model to compare all other structures. These assumptions are: (1.) Large volume of buyers and sellers: A perfect competition market has many buyers and sellers so none are able to influence the market. (2.) Homogenous products: All producers generate the same product with no differentiation. (3.) Excellent or perfect knowledge: Buyers and sellers have an extensive amount of information about the product and other producers. (4.) Free entry and exit into the market: Firms are able to allocate resources in and out of this market easily with little expense. (5.) Firms are able to quickly to respond to a changing consumer demand. (6.)Workers and other resources are easily moved in and out of the industry. While there is not one organization which is able to meet all of these assumptions, one of the best examples to illustrate a perfect competition market structure is the agricultural model. If a farmer produces one field of corn out of literally thousands harvested per year, it will not affect the market supply or price if he or she produces more
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