Market Structure and Analysis

996 Words4 Pages
There are a few different market structures, competitive market, monopolies, and oligopolies. According to Mankiw (2007) competitive market, also known as monopolistic competition or “perfectly competitive market” is defined as “a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker” (Pg. 290). In this market structure there are two characteristics: there are many buyers and many sellers in the market and the goods offered by the various sellers are largely the same. Maximizing profits in a competitive market is the difference between total revenue and total cost. There is a distinction between accounting and economic profits: economic profits equals’ sales revenue minus economic costs and account profits equals sales revenue minus accounting costs. The objective for a competitive market structure to maximize profits is to determine the optimum level of output at witch marginal cost equals market price. Output is determined in this structure by using the marginal decision rule and increasing output to the point which the benefit of the additional unit of output is equal to the marginal cost. The role of competitive market structure in the economy is important. This structure allow any firm to enter and exit, while buyers and sellers having little impute in the in the price which is determined by the market. An example of competitive market would be agricultural farming of wheat. There are many producers of wheat and
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