Market Structures

Mike Voelker

XECO/212

February 28, 2010

Darryle Parker

Market Structures

To maximize profits in a competitive market, monopolies, and oligopolies markets have many different strategies. These market structures are similar in many ways but have different traits. In a competitive market the price is set, in a monopoly the seller sets the price of their products, and in an oligopoly market a group of companies set production to control the price of the market.

There are two characteristics of a competitive market, there are many buyers and sellers of similar products and the goods offered by the sellers are similar. The price is determined by finding where the marginal cost meets marginal revenue. This is the perfect balance to maximize profits in a competitive market. Companies of a competitive market follow the set price that the market dictates; these companies are called price takers.

Monopoly

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Price takers take what price the market is set to sell their goods at, if their goods are higher, than the market buyers will move to another seller. "A firm in a competitive market, like most other firms in the economy, tries to maximize profit, which equals total revenue minus total cost."(Mankiw pg. 290) Output in this market does not matter as the company will receive the same price no matter how many units they produce. The more unites a company produces for a lower cost profits will increase. There are no barriers to enter or leave a competitive market, in a competitive market the prices are already set so a company knows how much they will profit from making their product. To increase profits companies look for ways to decrease production cost, the lower overhead a company has the higher...