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Microeconomics - Essay Example

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Market structures are the different conditions or characteristics of a certain market that interrelate to determine the degree of competition and profitability of a given market in an economy. There are different market structures in the economy determined by the different…
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Download file to see previous pages... One of the main characteristics of perfect competition includes sale of homogenous goods where all firms in the market same the same good. The second characteristic of perfect competitive market is perfect information where all sellers and buyers if goods know the price of the good and an increase in price by the seller will result in zero sales.
Monopoly is a market structure consisting of one seller and many buyers; hence, the seller has total maker power on price and quantity. The main characteristic of this market is the lack of close substitutes; hence, the users have to purchase from the firm at the price. The second characteristic of monopoly is high barriers of entry that could be as a result of high capital requirement, ownership of production resources by the firm, natural causes, and government offer of single license to the firm ensuring presence of abnormal profits in the long-run in a monopoly market.
Oligopoly defines a market structure characterized by few large firms operating in the market hence the decision of a firm affects other firms in the market. A characteristic of an oligopoly is aggressive and defensive advertising to ensure buyers get information on the products and give a firm advantage over the other firms in the market. The other characteristic is price rigidity, since when one firm increase price other firms may not follow suit leading to loss of sales by the firm with an increased prices and augmented sales for the other firms.
Monopolistic competition consists of a market structure consisting of firms with a degree of market power owing to the production of non-perfectly substitutable goods, and the aim of the firms is profit maximization. A characteristic of monopolistic competition is free entry of firms ensuring the economic profits in the long-run are reduced to normal profits. The second characteristic is that firms produce differentiated products allowing for a certain degree of market power since the goods cannot be ...Download file to see next pagesRead More
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