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Market structures - Essay Example

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Market Structures Introduction In order to understand the different types of market structures a thorough analysis is required for understanding of the market forces. This report makes an attempt to answer the various types of questions that may arise in the context of markets in an economy Answer 1 In the economic analysis there are various kinds of market structures that may operate in the economy depending on the number of sellers and the degree of market power that each seller has in the market…
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Market structures
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Download file to see previous pages Since the market power is equitably distributed among the sellers in this market who sell homogenous products the markets generally have a downward sloping demand curve. On the other hand the individual firm will face a horizontal demand curve as the price would be set by the market and it will be given to the individual seller. While the market equilibrium of a perfect competition would be at the point of intersection of the demand the supply curve, the individual firm will produce at the point where Marginal Cost curve cuts the Average cost curve from below. In this figure the firm will earn only normal profits as the firm has to supply the products in the market at the price which is equal to the cost of production of the company. Source: Arnold, 2013 Characteristics There is no barrier to entry or exit in this type of market. Any firm may easily come into the competitive scenario and may leave the market without having a major effect on the demand and supply in the market. The firms sell homogenous products which mean that the buyers would be indifferent between the sellers who offer the products in the market. ...
Each of the firms has a single portion of the market share. The production will take place at the point where ATC curve is tangent to the market demand curve instead of the point where the MC curve cuts the ATC curve from below. Source: Arnold, 2013 Characteristics: The products sold in a monopolistic competition are a differentiated product which means they are not perfect substitutes of one another. The produces have some control over the market price and hence there is excess capacity in the process of production. The quantity produced would be less compared to that of perfectly competitive markets. Monopoly In a monopoly market there is a single seller and a large number of buyers. Since the entire market power is in the hands of the single seller the price is set above the price that is present in the perfectly competitive markets. The monopolist will produce at the point where MR is equal to MC. This is depicted in the diagram below. Source: Varian, 2010 Characteristics In case of a monopolist there is presence of excess capacity and the quantity produced is less than that of the competitive markets. There is high barrier to enter the monopolistic market is very high. Oligopoly An oligopolistic market is that which has a few sellers and a large number of buyers. The market power is distributed among the sellers of the markets. There may be different types of oligopolistic competition. While some firms may be fighting price competition the others would fight the quantity competition. Characteristics The firms in the oligopolistic markets are the price setters. The barriers to entry in this type of market are high. Answer 2 The market for fresh vegetables in the city is an example of perfectly competitive market. In this market there are a large number of ...Download file to see next pages Read More
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