Differentiating Between Market Structures Simulation

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Differentiating Between Market Structures Simulation

University of Phoenix

ECO/365: Principles of Microeconomics

November 9, 2009


Differentiating Between Market Structures Simulation

In the University of Phoenix simulation (2003), Differentiating Between Market Structures, a situation is presented concerning cost and revenue curves in the different market structures by a freight transportation company. Throughout the simulation scenarios are presented and decisions must be made to maximize profits or to minimize losses (University of Phoenix, 2003). This paper will summarize and address the advantages and limitations of supply and demand the simulation, analyzing how market structures maximize profits, identify the market structure of a selected organization, and include a table that compares and contrasts the various characteristics of the four market structures.

Advantages and Limitations of Supply and Demand

All firms strive to obtain their objective of maximizing profits, "to get as much for itself as possible" (Colander, 2008, p.

242). All firms regardless of the market structure in which they operate will maximize profits when marginal cost (MC) equals marginal revenue (MR).

Scenario One

In the first scenario, East-West's Consumer Goods Division operated in a perfectly competitive market structure. A perfectly competitive market is "a market in which economic forces operate unimpeded' (Colander, 2008, p. 238). The division had been recording losses for the past few years and was considering exiting that line of business. A decision was made to continue operations and limit output to 6.75 million hundred weight shipments at $55 per hundred weight shipment to minimize losses at $150.03 million.

In a perfect competition, many sellers exist and all sellers take the market price (P) because no seller can control the market price. "Profit is maximized for each seller at the output where marginal revenue (MR) equals marginal cost (MC)"...