The simulation positioned users of the software as a CEO of East-West Transportation a freight transportation company. The simulation took users through each division of the company, that if which being Consumer Goods, Coal, Chemical, and Forest Products. The simulation aided in the differentiation between the four market structures. It also taught students to identify and interpret cost and revenue curves for each market.
The Consumer Good's Division of East-West Transportation Inc operates as a perfect competitive market. A perfect competitive market structure has "a large number of buyers and sellers" (Colander, 2004). With this type of market structure, no company controls the market price. The CEO develops the market price to determine the output of production to maximize profits. The CEO, implements the output where MR equals MC. Therefore, the profit maximizes at a point where P equals MR equals MC. The CEO evaluates the study and determines at this point, East-West Transportation Inc will continue to operate.
Even with losses at every level of production, the continuation of production allows the company to recover the variable costs but not fixed costs. Shutting down the operations the company would incur losses equal to the fixed costs, which is higher than the continuation of production.
The Coal Division of East-West Transportation Inc is a "regional monopoly" (University of Phoenix, 2009). A monopoly structure firm has control over setting prices and therefore, "does not take the market price as a given" (Colander, 2004). Although a firm is a monopolistic structure, demand plays a large role in the pricing. If prices for transporting coal are too high, then the demand will be low and profits are not high. The Coal Division maximizes profits when MR equals MC. If either one of these, MR or MC falls below one...