ECO204: Principles of Microeconomics
June 3, 2013
My paper is on the market structure of economics based on perfect competition, monopolistic competition, oligopoly and monopoly. All of these forms of economic market structures play a vital role in a healthy economic market.
In the perfect competition market, there are a large number of firms each producing the same product. A perfect competition firm is one that has no power to alter the price it receives for its product. For this reason, the perfectly competitive firm is sometimes called a “price taker”. The firm takes the price of its product as determined in the market. The agricultural firm or farm is the only firm that meets this criterion. Therefore, agriculture is a perfectly competitive industry of perfectly competitive firms. The small size of each firm relative to the industry’s size suggests a lack of significant scale economies. The barriers to entry are low, so it is easy for other firms to get into or out of the market. (Peterson – 1989)
There are two (2) basic reasons that a perfectly competitive firm must accept the price of that is determined by the market: (1) it sells a product that is undifferentiated from the product of all other firms in the market and (2) it sells a small proportion of the total market. A perfectly competitive firm sells a product indistinguishable from what is produced by other firms in its market means that buyers have