Pure Competition Essay

There are a variety of different business structures that comprise the market in the world today. The most common ones found in the business world today are sole proprietorships, partnerships, and corporations. From these you will also find monopolies and oligopolies. Economists assume there are a number of different buyers and sellers in the market which leads to competition which allows prices to change in response to changes in supply and demand.(1) In many industries you there are substitutes for products, so if one type of product becomes too expensive the consumer can choose an alternative product that is cheaper, or one of better quality.

1) An Oligopolistic market structure is a structure where very few large businesses sell a particular standard Good or differentiated Good, and to whose market entry proves difficult. This in turn, gives little control over product pricing because of mutual interdependence (with the exception of collusion among businesses) creating a non-price competition meaning they are the ‘price setters’. A good rule to help classify an

There are many models of market structure in the field of economics. They include perfect competition on one end, monopoly on the other end, and competitive monopoly and oligopoly somewhere in the middle. In this paper, we will focus on the oligopoly structure because it is one of the strongest influences in the United States market. Although oligopolies can also be global, we will focus strictly on the United States here. We will define oligopoly, give key characteristics important to the oligopoly structure, explain why oligopolies form, then give an example of an oligopoly in today’s economy. Finally, we will discuss the benefits and costs in this type of market structure.

The firm's profit maximizing output is less than the output associated with minimum average cost. The firm’s demand curve is not flat but is downward sloping. Thus in the long-run the demand curve will be tangential to the long-run average cost curve at a point to the left of its minimum. The result is excess capacity.”

In comparison, the marginal cost is the added cost of producing one more unit of output. It is determined by the change in total cost (TC) divided by the change in output (Q). MC= TC/Q. In the provided scenario, for Company A to produce one widget TC=$30, to produce two widgets TC=$50 thus the marginal cost was $20; furthermore the cost per widget to produce was $25. Marginal cost will continue to decrease for Company A until they reach their profit maximization of $42.86 per widget at 7 widgets. Marginal cost will then begin to decrease for every additional widget produced until the end result of 15 widgets with a MC that exceeds $80, also allowing TC to topple to TR ($1220/15=$81.33).

In the field of microeconomics, the market structure of an organization determines the performance of the organization within the industry. There are different types of market structures practiced today. Among these market structures include the perfect competition structure (Miller, Vandome, & McBrewster, 2009). In perfect competition structure, the competition happens between numerous small firms against each other. In this practice, there is optimum production by the firms socially at the minimum cost per unit possible. There is no barrier to entry in this structure, hence new companies and organizations can join easily. The

b. What is Beth’s profit maximizing price and quantity? Answer: MR = MC at a price of $0.60 and quantity of 5 cups. c. At that price, what are Beth’s economic profit and total consumer surplus? Answer: Profit = (P - MC) Q = (0.60 - 0.20) 5 = $2. Consumer surplus is reservation price minus actual price for each cup sold: ($1.00 - $0.60) + ($0.90 - $0.60) + ($0.80 - $0.60) + ($0.70 $0.60) = $1. d. What price should Beth charge if she wants to maximize total economic surplus? What quantity would she sell? How much would total economic surplus be? Answer: She should set P = MC = $0.20. Nine (or eight) cups of lemonade would be sold. Total economic surplus is reservation price minus marginal cost for each cup sold: ($1.00 - $0.20) + ($0.90 - $0.20) + ($0.80 - $0.20) + ($0.70 - $0.20) + ($0.60 - $0.20) + ($0.50 - $0.20) + ($0.40 $0.20) + ($0.30 - $0.20) = $3.60. e. Now suppose Beth can tell the reservation price of each person. What price would she charge

14. (The Long-Run Industry Supply Curve) A normal good is being produced in a constant-cost, perfectly competitive industry. Initially, each firm is in long-run equilibrium. Briefly explain the short-run adjustments for the market and the firm to a decrease in consumer incomes. What happens to output levels, prices, profits, and the number of firms?

In the short run the perfect competition equilibrium can be found by graphing the marginal cost (MC), average total cost (ATC) and marginal revenue (MR) curves. In perfect competition the price is equal to the average revenue, which is equal to the marginal revenue and these are all constant, giving an infinitely elastic demand curve for the firm. The demand curve is “perfectly price elastic” due to the homogeneity of the products supplied, where each supplier, as a price taker, must focus on a single price. Given this, the only choice a supplier has in the short run is how much to produce. For profit maximisation to occur marginal costs (supply curve) must equal marginal revenue (demand curve). Profit maximisation is assumed to mean the maximisation of normal economic profit (i.e. revenue that covers the

(Key Question) In each of the following four cases, MRPL and MRPC refer to the marginal revenue products of labor and capital, respectively, and PL and PC refer to their prices. Indicate in each case whether the conditions are consistent with maximum profits for the firm. If not, state which resource(s) should be used in larger amounts and which resource(s) should be used in smaller amounts.

Where Si is the firm’s market share, and 𝑆𝑆𝑞𝑞 = ; and e is the absolute value of the elasticity

•Oligopoly: This is an industry with very little firms in the market. If they conspire, they weaken output and raise profits the way a monopoly would and should do. For example the mobile phone industry is an oligopoly what with so many companies for example Apple, LG and Samsung all competing together. Supermarkets are oligopoly’s as they make supernormal profits as well.

Has the economy ever thought about direct impact from monopoly and oligopoly industries? The structure of a monopoly based industry exemplifies one seller in the entire market. On the other hand, the concept of an oligopoly industry illustrates few sellers that have the potential of making a direct impact in one single industry idea. The economy has depended on the market share of a monopoly and an oligopoly trade. However, a monopoly industry differs from an oligopoly industry due to a monopoly competitor dominates a majority of the market share of many industries and an oligopoly competitor contains few sellers who dominate a market share based on one single industry idea.

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.

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