Maximizing Profits in Market Structures Paper

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Maximizing Profits 1

Maximizing Profits in Market Structures Paper Sharon Ballard XECO/212 Michelle Council November 7, 2010

Maximizing Profits 2 Maximizing Profits in Market Structures Paper The structure of a market is defined by the number of firms that are competing in that market, along with factors such as: the ways in which these firms are alike or different, and the obstacles that exist in any new firms entering that market. In this report I will discuss Competitive Markets, Monopolies, and Oligopolies. I will point out what role each of the market structure play in the economy. This report will list
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A monopolist sets the price for the product or service to maximize profits. The profit maximizing price and output is at the same point where marginal cost equals marginal revenue. The output is less than what it is in the perfect competition. It is possible for a monopolist to earn some economic profits, if there are no entries of new firms that exist. Microsoft is a monopoly because there are few competitors. Microsoft is supervised by contracts and patents that create Maximizing Profits 4 strong barriers for its potential competitors. Barriers to monopoly are considered low, as only a small investment may be required to enter the market. The role that monopoly plays in the economy is that if the firm reduces the price for its product, the firm must now sell all units at a lower price. Because the lower price applies to all units sold, not just the last or the marginal unit. “Oligopoly is a group of sellers, who work together and have some control over the prices of a commodity in which there are a few independent providers.” Oligopoly is a market that controls a commodity and is dominated by a small number of firms that act on one’s behalf. The prices set by all firms are nearly identical because any effort to change the price by one firm will induce other firms to follow suit. “An important characteristic of an oligopolistic market structure is the interdependence of firms in the industry. The