Differentiating between Market Structures

Essay by coopdogUniversity, Bachelor'sA, January 2009

download word file, 4 pages 5.0

The structure of a market is defined by the number of firms in the market, the existence or otherwise of barriers to entry of new firms, and the interdependence among firms in determining pricing and output to maximize profits. This paper will cover the advantages and limitation of supply and demand identified in the simulation, the effectiveness of the organization, and how the organizations in each market structure maximizes profits.

The simulation looks at all four types of market structure within the East-West Transportation Company. There are four divisions that operate within each of the four market structures. The divisions are Consumer Goods, Coal, Chemical and Forest Products.

In the first scenario, the decision must be made whether to continue operations or shut down operations. After completing the simulation, it pointed towards continuing with operations in a perfect competition market. In the scenario the market demand curve is downward sloping, each seller perceives the individual demand curve facing him or her to be perfectly elastic at a given price.

Given this scenario this demand curve and the cost structures, sellers try to produce and output at maximized profit.

The second scenario has the company looking at the coal division, which operates in the monopoly structure. Tanya Roy pointed out that the law of demand holds in a monopoly. At a high price, quantity demanded is high and profit would not need to be high. For a monopolist, price exceeds marginal revenue. Thus, at the output where Marginal Revenue = Marginal Cost, you extend the quantity line to the demand curve to determine the price to charge for this output. The demand curve is facing in a downward slope in the monopolist structure.

In the third scenario the market structure is oligopoly- duopoly in the Chemical Division. The industry marginal cost...