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 …show more content…
That is, the additional revenue from producing additional quantity equals the additional cost incurred in producing that quantity. At an output where MR is greater than MC, increasing production increases profits. If MR is less than MC, decreasing production increases profits. Therefore, MR=MC is the profit-maximization condition. In perfect completion, the price is a given for each firm, P=MR. This is because the fixed price per unit is the additional revenue the firm can expect to earn by selling additional quantity. The firm’s profit- maximization condition becomes P=MR=MC. In the long run, however, all costs are variable. All firms in a perfectly competitive market make zero economic profit in the long run, because if profit was being made, more firms would enter the market and market prices would decline until all firms made zero profit (University of Phoenix, 2008).
In the monopoly there are no price taker- a monopolist sets the price for the product or service to maximize profits. The profit-maximizing price and output is at the point where MC=MR. The output is less than what it is in the perfect competition. In the long run, it is possible for a monopolist to earn some economic profits, if to entry of new firms exist (University of Phoenix, 2008).
In the oligopoly there are few firms, pricing and output decisions are strategic; that is each firm considers the reaction of the other firms while taking any decision. The prices set by all