It occurs when there is: - Poor communication and management in a large firm - Demotivation of workers and thus loss in production - Lack of control over a large manpower spread across locations - Loss of management efficiency when the firm is large and operating in uncompetitive markets - Overpaid resources on higher packages with almost no differentiated product - Product stops being a star product for the firm and becomes a dog instead due to rise in competition, loss of market share and slow market growth. Companies tend to liquidate their assets in such case to stay alive. If a firm has constant input costs owing to factors mentioned above, then decreasing returns to scale simply suggests a rise in long run average cost and diseconomies …show more content…
2. Perfect competition and monopoly are two extremes of market structure. Evaluate the statement by analyzing contrasting features and equilibrium price and quantity determination process under these two types of market. Illustrate your discussion with the help of real world examples. Answer Structure a) What is market structure b) Perfect competition structure vs monopolistic structure: contrasting features c) Equilibrium price and quantity determination in perfect competition d) Equilibrium price and quantity determination in monopoly a) What is market structure Market is a place where sellers and buyers of a product are spread. It’s an area where a product is being sold to a set of buyers at a certain price. A market has a structure which is determined by the nature of competition in the market. Therefore, a market structure is decided by: - Number of sellers - Number of buyers - Their respective nature/type - Nature/type of product - Entry and exit conditions in the market - Economies of scale Perfect competition and Monopoly are two types of market …show more content…
In perfect competition, buyers and sellers are fully aware of the current market price of a product thus none buys or sells at an exorbitant price. Therefore, almost the same rate prevails hypothetically. Because of price discovery, transparency and open information, the market price of a product in a perfect competition is determined by the industry or the laws of demand and supply. - Law of Demand: Demand is the quantity consumers are willing to purchase at a particular price other factors being constant. Generally, demand is more when price is low and vice versa. As shown in the figure below, the demand was OQ at OP price which slips to OQ1 when price increased to OP1. Thus the demand curve is sloping downwards to right under perfect competition. - Law of Supply: It is the quantity a seller is willing to supply at a particular price. Generally, supply of a product is high at a higher price and vice versa. For example, in the figure above, the supply was OQ at OP price. When the price increased from OP to OP1, the supply increased to OQ1 indicating an increase in supply with increase in supply for the profit maximization intention of the
Topic A (oligopoly) - "The ' An oligopoly is defined as "a market structure in which only a few sellers offer similar or identical products" (Gans, King and Mankiw 1999, pp.-334). Since there are only a few sellers, the actions of any one firm in an oligopolistic market can have a large impact on the profits of all the other firms. Due to this, all the firms in an oligopolistic market are interdependent on one another. This relationship between the few sellers is what differentiates oligopolies from perfect competition and monopolies.
For example, it is extremely important for many firms to be involved in order to prevent and individual firm from profiting only. By having many firms we assure that only a small fraction of the total amount in the market is either sold or bought. Not only is having many buyers and sellers important, providing a standardized product, a commodity, is essential for this market type. A commodity will guarantee that the good or service being sold is roughly the same across all suppliers. Being highly mobile is another characteristic that a perfectly competitive firm must have. The firm needs to be able to relocate if suitable profits are not met. Full disclosure of price and availability is also crucial in a perfectly competitive firm. Buyers and sellers need to be aware of costs of products and services in order to secure that the deal they are obtaining is the best possible. In this type of market the barrier of entry is very low. Basically in order to enter and become a perfectly competitive firm the investor usually only requires sufficient financial capital and a license or permit. Perfectly competitive firms are price-takers. They are care price-taker characterized by accepting the price the market sets on their product or service, and have no control over the change of
There are four major market structures; perfect competition, monopolistic competition, oligopoly, and monopoly. Perfect competition is the market structure in which there are many sellers and buyers, firms produce a homogeneous product, and there is free entry into and exit out of the industry (Amacher & Pate, 2013). A perfect competition is characterized by the fact that homogeneous products are being created. With this being the case consumers have no tendency to buy one product over the other, because they are all the same. Perfect competitions are also set up so that there is companies are free to enter and leave a market as they choose. They are allowed to do with without any type of restriction, from either the government or the other companies. This structure is purely theoretical, and represents and extreme end of the market structure. The opposite end of the market structure from perfect competition is monopoly.
A change in quantity supplied is just a movement from one point to another in the supply curve. In opposite, the cause of a change in supply is a change in one the determinants of supply that shifts the curve either to the left or the right. These determinants are the resource prices, technology, taxes and subsidies, producer expectations, and number of sellers. An equilibrium price is required to produce an equilibrium quantity and a price below that amount is referred as quantity supplied of zero no firms that are entering that particular business. If the coefficient of price is greater than zero, as the price of the output goes up, firms wants to produce more of that output. As the price of the output goes up it becomes more appealing for the firms to shift resources into the production of that output. Therefore, the slope of a supply curve is the change in price divided by the change in quantity. The constant in this equation is something less (negative number always) than zero because it requires strictly a positive...
A perfect competition market describes a market setting wherein the buyers and sellers are so numerous that the market price of commodity is no longer in control of either the buyers or the sellers.
The first type of competition market is perfect competition. Perfect competition has three characteristics. Firstly, it must have “many buyers and sellers in the market, [firms that] can freely enter or exit the market and each [firm] selling an identical product therefore each buyer and seller are price taker[s]” (Mankiw, 2012, p. 280). For example, in the egg market, there have many sellers and buyers, therefore the sellers have no market power to influence the selling price and therefore need to follow the market price. Moreover, the firm’s decision in perfect competition markets can be classified into short-run decisions and long-run decisions. Short-run is defined as a period of time in which each firm has a given plant size and the number of firms in the industry is fixed; while long-run is defined as a period of time in which the quantities of all inputs can be varied. In the short-run’s, firm can decide if they want to continue producing or to shut down the industry, and the quantity to produce if they decide to produce. In the long-run, firms can choose to enter or exit the industry, giving an increase or decrease in its plant size. The advantage of a perfect competition market is that the industry is easy to enter or exit, and that the consumers can buy an identical product for a fair market price; while the disadvantage is that the sellers cannot increase the selling price as they wish. Profit-maximizing output is the ...
A perfectly competitive market is based on a model of perfect competition. For a market to fall under this model it must have a number of firms, homogeneous products, and easy exit and entry levels into the market (McTaggart, 1992).
Monopolies have a tendency to be bad for the economy. Granted, there are some that are a necessity of life such as natural and legal monopolies. However, the article I have chosen to review is “America’s Monopolies are Holding Back the Economy (Lynn, 2017)” and the name speaks for itself.
Markets have four different structures which need different "attitudes" from the suppliers in order to enter, compete and effectively gain share in the market. When competing, one can be in a perfect competition, in a monopolistic competition an oligopoly or a monopoly [1]. Each of these structures ensures different situations in regards to competition from a perfect competition where firms compete all being equal in terms of threats and opportunities, in terms of the homogeneity of the products sold, ensuring that every competitor has the same chance to get a share of the market, to the other end of the scale where we have monopolies whereby one company alone dominates the whole market not allowing any other company to enter the market selling the product (or service) at its price.
A monopoly is “a single firm in control of both industry output and price” (Review of Market Structure, n.d.). It has a high entry and exit barrier and a perceived heterogeneous product. The firm is the sole provider of the product, substitutes for the product are limited, and high barriers are used to dissuade competitors and leads to a single firm being able to ...
Perfect competition, also known as, pure competition is defined as the situation prevailing in a market were buyers and sellers are so numerous and well informed that all elements of monopoly
In a perfectly competitive market, the goods are perfect substitutes. There are a large number of buyers and sellers, and each seller has a relatively small market share. Perfect competition has no barriers to information regarding prices and goods, meaning there is no risk-taking behaviour – sellers and buyers are rational. There is also a lack of barriers for entry and exit.
The market price of a good is determined by both the supply and demand for it. In the world today supply and demand is perhaps one of the most fundamental principles that exists for economics and the backbone of a market economy. Supply is represented by how much the market can offer. The quantity supplied refers to the amount of a certain good that producers are willing to supply for a certain demand price. What determines this interconnection is how much of a good or service is supplied to the market or otherwise known as the supply relationship or supply schedule which is graphically represented by the supply curve. In demand the schedule is depicted graphically as the demand curve which represents the amount of goods that buyers are willing and able to purchase at various prices, assuming all other non-price factors remain the same. The demand curve is almost always represented as downwards-sloping, meaning that as price decreases, consumers will buy more of the good. Just as the supply curves reflect marginal cost curves, demand curves can be described as marginal utility curves. The main determinants of individual demand are the price of the good, level of income, personal tastes, the population, government policies, the price of substitute goods, and the price of complementary goods.
A market structure are the characteristics of a market that significantly affect the behavior and interaction of buyers and sellers (Cabiya-an, 2014). This essay will describe the 4 market structures; perfect competition, monopolistic competition, oligopoly and monopoly. I will compare and contrast the market structures in relation to benefits and costs to the consumer and producer.