Every single household In the entire world purchases goods and services on a dally basis. Whether individuals purchase food, gas, household items, household utilities, travel tickets or any other goods or services, many people deem it beneficial to know the markets that they take part in as the consumer. In order to begin understanding the importance of market structures this paper will first define the term and concepts concerning market structures.
Next, this paper will analyze a simulation given by the university of Phoenix as a learning tool to help understand market structures and eighty covering what the advantages and Limitations of supply and demand Identified in the simulation were. Then this paper will attempt to apply the concept of market structures to an organization the author is familiar with. Lastly, this paper will make an effort to analyze how organizations in each market structure maximize profits. According to the Objectifications. Mom website, the term market structure is defined as “Interconnected characteristics of a market, such as the number and relative strength of buyers and sellers and degree of collusion among them, level and arms of competition, extent of product differentiation, and ease of entry Into and exit from the market” (Businessperson. Com, 2008). The four basic market structures in economics are perfect competition, monopoly, monopolistic competition and oligopoly. A market that is in the market of perfect competition, “is a market in which economic forces operate unimpeded” (Colander, 2004).
A market that is considered a monopoly Is “a market structure In which one firm makes up the entire market (Colander, 2004). A monopolistic competition Is “a market structure In which there are any firms selling differentiated products” (Colander, 2004). Oligopoly Is “a market structure in which there are only a few firms” (Colander, 2004). Having defined crucial terms concerning market structures, this paper will analyze the simulation provided by the University of Phoenix.
The simulation positioned users of the software as a CEO of East-West Transportation a freight transportation company. The simulation took users through each Dillon 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 simulation’s first circumstance was putting the user in the position to decide whether to continue with the Consumer Goods Division.
The two senior staff members had opposing views on shutting down the division and continue by delighting output. After going over the Average Variable Cost graph, Average Total Cost and Marginal Cist, the user must have lessened the output and maximize profit. According to the simulation since Profit = Marginal Revenue (P=MR.), the reduction of output left it at Profit = Marginal Revenue = Marginal Cost (P = MR. = MAC). At this point, the given price was $55 per hundredweight (or 6. 75 million hundredweight shipments.
Although at this time the Consumer Goods Division was able to cover The next situation placed East – West Transportation as the single carrier service of coal on the Eastern Region along with the migration of the only competition. The company became a monopoly, also determined the cost to set to take full advantage f revenue by increased price, and reduced output. In this scenario the profit is initiated to be Marginal Revenue is greater than Marginal Cost (MR.>MAC). This was a result of the extension of the line past MR.=MAC.
Due to lack of profits the competition withdrew from this business endeavor. The demand curve was well below the Average Total Cost. The third business venture, which East – West Transportation faced was competition with the Chemicals Division of Far and Wide Transportation. When the newly established competitor began reducing their prices, East – West Transportation cost their position as a monopoly in this region. At this point in the simulation, any form of Judgment acted upon sparked a price war between East -West Transportation and Far and Wide Transportation, a duopoly.
During a duopoly it may be tricky to anticipate the actions of the competition. As the price for East -West was alleviated, the company’s profits were at a maximum level. In order to determine prices, past data and business endeavors that have been successful for that company should be taken into account. Initiating a price war may result in abridged earnings for the two businesses. The last step in the simulation was to boost profits for the Forest Products Division. Here, the latest lumber car is obtainable and may help provide better service to customers of East -West.
In making the decision on whether to purchase the new lumber car, it was crucial to remember that in a monopolistic competition, a company should market themselves to stand out due to easy entry for all in the industry. Investment in the new car and increased prices to amplify profits were the decisions made. At this point in the simulation, profits were boosted in which MR.=MAC. In most circumstances within the simulation, it is blatant (in most situations) that when demand is elevated, prices and supplies increase.
The competitor’s price strategy was a defining factor in the determination of base strategy in the best interest of East – West Transportation in maximizing profits. A monopolistic market structure is dissimilar; it has the ability to set prices. Having analyzed the simulation provided by the University of Phoenix, the author of this paper will now attempt to apply the concept of market structures to an organization in which she is familiar with. The company I work for should be considered to be involved in a monopolistic competition. Within the company, there are several buyers and sellers.
There is a significant turn out for services rendered and dependability. AGAVE goes through increases in price on a yearly basis in order to maximize profits and reciprocating by the renegotiation of contracts by reducing prices on products, which are high in demand. In instances of free entry and departures of competition, there would be absolutely no profits. AGAVE is extremely successful when the varieties of products are actually different. If, in case, AGAVE did not produce different designs or upgrades of products, the company may experience a loss of contracts and consumers.
Finally, maximize profits. A new company competing in perfect competition experiences no barriers to entry with a plethora of sellers and purchasers. In a perfect competition market structure, profits may be maximized when MR.=MAC in a short amount of time. In the end, all expenditures are unpredictable and every competitive business makes no profit. The issue of “Given the demand curve, how much should I supply? ” limits this type of circumstance. Colander, 2004). Businesses within a monopoly experience extreme barriers to entry and have the opportunity to set prices.
Being a monopoly, a business has no competition and may set the prices to maximize profits for the company. Businesses Just starting out may encounter many barriers where competition is nonexistent and barriers to entry are big. With no competition, the product may suffer. Customers have no option but to buy or not buy the good or service provided. The equation of MAC=MR. is relevant to every market structure when attempting to maximize profits. The monopolistic many should determine whether to increase or reduce supply.
Monopolistic businesses should charge what they think a customer will pay. A company within a monopolistic competition is up against many sellers and customers. With few barriers to entry, the company should vend goods or services that are unique of their competition. Accompanying a downward sloping curve of demand, the MR.=MAC line is alleviated with the demand curve. Here is where prices can be determined (at the intersection) to maximize profits. For an oligopoly, there are not many firms, but barriers to entry for new intention are big.
Before determining any strategic options, the actions of the competition should be taken into consideration. By doing this a business within an oligopoly may maximize profits in the end if other businesses follow suit. The understanding of today’s market structures is crucial in the business world today. The simulation (along with readings) supplied by the University of Phoenix can be quite beneficial when learning about market structures. This enlightening simulation gives users the chance to experience the advantages and disadvantages of each