Differentiating between Market Structures
The structure of a market is defined by the number of firms in the market, the existence or otherwise of barriers to entry of new firms, and the interdependence among firms in determining pricing and output to maximize profits. The author of this paper will cover: the advantages and limitation of supply and demand identified in the simulation, the effectiveness of the organization in which the author knows, and how the organizations in each market structure maximizes profits.
The simulation looks at all four types of market structure within the East-West Transportation Company. The four divisions operate within each of the four market structures. The divisions are Consumer Goods, Coal, Chemical
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The Forest Product Division operates in the monopolistic competition market structure. A firm operating in monopolistic competition faces a downward sloping demand curve (University of Phoenix, 2008).
The effectiveness of Staples
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.
Market Structure Maximize Profits
The goal of a firm is to maximize profits, to get as much for
The following case study is in regards of economic market structure. In the world of economics all businesses or companies rather, are categorized in certain market structures such as monopoly, oligopoly, or perfect competition, for instance, the market structure for restaurants. Most restaurants are considered monopolistic competition. Being that they all sell and serve food. They have to have instances that vary such as price, logos, servers, locations, décor, types of food, and hospitality.
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
Huges, N. (2011). Schools expect to have more iPads than computers in next 5 years. Retrieved
The following figure shows the demand, marginal revenue, and marginal cost curves for a profit maximizing monopolist.
Kudler Fine Foods is the brain child of Kathy Kudler. She envisioned a one stop gourmet food store and has grown to three locations to date. She continues to maintain direct control over large bulk purchase order items, stringent customer service policies, and hiring. This paper discusses how the organization competes in the marketplace and the strengths and weaknesses of the company according to the marketing surveys their customers completed. The following also discusses which market structure best applies to the organization and how that structure positively and negatively affects the firm, how the effectiveness of the competitive strategies in the market structure affect the
Hint : Typically, in a monopolistic competition industry, if one company increases price, the other company also increases their price to make more revenue in the long term.
“Kudler Fine Foods was established in 1998 when Kathy Kudler fulfilled her vision of establishing her own gourmet food store. The La Jolla store continues to grow while the Del Mar store has been having some difficulties. The store in Encinitas has just opened, but sales seem brisk.” (Apollo, 2011, Strategic Plan, p. 3) The owner works 7 days a week and performs many jobs from purchasing to stocking shelves. Kudler Fine Foods sees itself outside of competition.
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.”
Market structure is the physical characteristics of the market within which companies react. This means that there are different kinds of market structure based on how companies work together within a particular industry. Location and product have the most to do with determining the market structure. There are four defined market types. The first market structure is called the perfectly competitive market. The second market is called a monopoly market structure. The third market is called monopolistic competition market structure. The final market is called oligopoly market structure. Each market structure is different and both benefits and disadvantages
Given the conclusions drawn on Market Structure above, examine the level of competition within this market sector with the use of Porters 5 forces model to reinforce your explanation.
The organization and characteristics of a specific market where a company operates is referred to as market structure. While markets can basically be classified by their degree of competitiveness and pricing, there are four types of markets i.e. perfect competition, monopolistic competition, monopoly, and oligopoly. In perfect competition markets, many firms are price takers whereas monopolistic competition markets are characterized by the ability of some firms to have market power. In contrast, oligopoly markets are those in which few firms can be price makers while monopoly market is where one firm can be a price maker.
When examining market structure, one must look at several factors including the quantity of firms, type of products offered, barriers to entry, pricing power and non-price competition. In order to define the fast food market, all of these factors must be considered. Due to competition, price wars, and barriers to entry in the fast food market, market structure becomes slightly muddled and
Accordingly, we will first "analyze" competitive markets, by discussing demand and supply separately. Then we will try to put them back together (synthesize them) in order to understand the working of competitive markets.
The markets today are so complex and deal with so many variables it can be difficult to understand just exactly how they operate. In the following I will reveal the different kinds of market structures along with their different pricing strategies. Relating to these topics, I will focus on the importance of cost, competition and customer.
Among the actors that influence the organization we can find mainly customers, suppliers, subcontractors, intermediaries and competitors. The company collects information on supply and demand for its industry in order to anticipate the possible and probable developments. The diagnosis of the offer, the diagnosis of the structure of the sector 's costs, the degree of concentration or fragmentation of the sector, the intensity of competition are all essential information to the company that will enable to implement a