Market Structures
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Market Structures and Maximizing Profits
Brian Bates
XECO/212
Friday, June 4, 2010
Dr. Steve Hoagland
Different factors can be discussed when determining the different roles competitive markets, monopolies, and oligopolies play in the economy. In the following paragraphs I will explain the different roles of these markets, and how they determine price and their output to maximize profits.
The characteristics of a competitive market structure are: a large amount of buyers and sellers in the same market, and goods offered by a variety of sellers that are the same. According to Mankiw (2007), “a competitive market is a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker” (p. 290). An example of a firm in a competitive market is Krogers. Krogers is a competitive firm because there are a variety of sellers and buyers with identical products.
Price in a competitive market is controlled by the supply curve of the product or products offered. A firm maximizes its profits by producing the quantity of a good that makes profit as large as possible. For a firm to maximize profit in a competitive market marginal revenues must exceed marginal costs, increasing the quantity produced raises profit (Mankiw, 2007).
In order for Krogers to maximize their profits, they manipulate their list prices of their product with the highest profit while selling the most goods at that price. No barriers exist in a competitive market because firms can enter or exit the market freely. A competitive market plays an important role in the economy by allowing competition, which allows consumers to receive the best value for their money.
The characteristics of a monopoly structure are if a firm is the only seller of a product and there are no close substitutes of the product sold (Mankiw, 2007). An example of a monopoly firm is DP&L (Dayton Power and Light), which is the sole...
Brian Bates
XECO/212
Friday, June 4, 2010
Dr. Steve Hoagland
Different factors can be discussed when determining the different roles competitive markets, monopolies, and oligopolies play in the economy. In the following paragraphs I will explain the different roles of these markets, and how they determine price and their output to maximize profits.
The characteristics of a competitive market structure are: a large amount of buyers and sellers in the same market, and goods offered by a variety of sellers that are the same. According to Mankiw (2007), “a competitive market is a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker” (p. 290). An example of a firm in a competitive market is Krogers. Krogers is a competitive firm because there are a variety of sellers and buyers with identical products.
Price in a competitive market is controlled by the supply curve of the product or products offered. A firm maximizes its profits by producing the quantity of a good that makes profit as large as possible. For a firm to maximize profit in a competitive market marginal revenues must exceed marginal costs, increasing the quantity produced raises profit (Mankiw, 2007).
In order for Krogers to maximize their profits, they manipulate their list prices of their product with the highest profit while selling the most goods at that price. No barriers exist in a competitive market because firms can enter or exit the market freely. A competitive market plays an important role in the economy by allowing competition, which allows consumers to receive the best value for their money.
The characteristics of a monopoly structure are if a firm is the only seller of a product and there are no close substitutes of the product sold (Mankiw, 2007). An example of a monopoly firm is DP&L (Dayton Power and Light), which is the sole...