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Ompare the supply and pricing decisions of firms in both a perfectly competitiive and monomply market .explain clearly the assumptions made in each case. to what extent would you regard a local taxi firm as operating in a perfectly competitive market - Essay Example

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A market is structured differently basing on the characteristics of competition within the market. At one extreme is perfect competition and at the other extreme is monopoly. The type of…
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Ompare the supply and pricing decisions of firms in both a perfectly competitiive and monomply market .explain clearly the assumptions made in each case. to what extent would you regard a local taxi firm as operating in a perfectly competitive market
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Extract of sample "Ompare the supply and pricing decisions of firms in both a perfectly competitiive and monomply market .explain clearly the assumptions made in each case. to what extent would you regard a local taxi firm as operating in a perfectly competitive market"

Perfectly competitive and monopoly market By of the of the School There are various kinds of market structures in any given industries within the economy. A market is structured differently basing on the characteristics of competition within the market. At one extreme is perfect competition and at the other extreme is monopoly. The type of market structure of a firm in a given industry influences the way the company conducts business and how pricing strategies and how to obtain the quantity supplied. However, pricing strategy and quantity supplied all affects profit maximization for the firm (Besanko, et al. 2011 p., 78).
In a monopoly market, there exists only one supplier of goods and services. This may be due to various reasons, for instance, restricted government entry into the market and creation of a monopoly following the firms merger. Besides, Producers that has patents over ideas, copyright or names providing them exclusive rights to supply a good or service exhibit monopoly. Such is a characteristic of a monopoly where the supplier has exclusive ownership of a given scarce resource. All these sources of monopoly power enable it to set their market price. Consumers lack close substitutes and as such they set prices as they wish. In a monopoly, the market price is set above marginal cost, and there is a positive economic profit earned by the firm for each unit supplied.
On the other hand, under perfect competition, there are many buyers and many sellers. And every player is provided with the perfect information about the market. As such the firm must accept the price determined through the forces of demand and supply. The firm is thus considered a price taker --it can produce as little or as much as it likes without affecting in any way the market price in any way. Each firm must at the same time match the price offered by their competitors since the products are identical in many ways. Or else, consumers can shift their purchases the competitor’s firm. There exist fewer differences in quality and quantity of goods and services between sellers. This is characteristic of perfect competitive market structure where products can easily be substituted. In other words, the company’s decision in perfect competitive market about how much to supply or what price to all the supply to the consumers depends on competitiveness of the market structure.
Local taxi firm, for instance, is an excellent example of the player that can be considered to be in a perfectly competitive market. Local Taxi Company operates in vehicle industry where there are many consumers of their service and at the same time many sellers who are their colleagues in the same industry. In extremely competitive market like where the local taxi operates, a single taxi firm has very little choice in what to charge their customers per trip. If they are busy and making more there is no reason to charge customer lower, but if it raises its fare, the local tax firm will have almost no customers. This happens because there are many substitute services and entry is not restricted to the industry they operate.
In conclusion, market structure of monopolies and perfectly competitive players varies significantly due to the market participants, hence the quantity supplied at a given price. All these go a long way in determining how individual firms maximize profits.
References
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Besanko, D., Braeutigam, R. R., & Gibbs, M. 2011. Microeconomics. Hoboken, NJ: John Wiley.
Boyes, W. J., & Melvin, M. 2012. Microeconomics. Mason, OH: South-Western Cengage Learning.Bottom of Form
Mankiw, N. G. 2011. Principles of economics. Mason, Ohio: Thomson South-Western.
McEachern, W. A. 2012. Economics: A contemporary introduction. Mason, OH: South-Western Cengage Learning.
Rittenberg, L., Rittenberg, Libby., Tregarthen, Timothy D., & Flatworld Knowledge. 2008. Principles of microeconomics. Nyak, New York: Flatworld Knowledge.
Stackelberg, H. ., Bazin, D., Urch, L., & Hill, R. 2011. Market structure and equilibrium. Berlin: Springer.
Tisdell, C. A., & Hartley, K. 2008. Microeconomic policy: A new perspective. Cheltenham, UK: Edward Elgar.
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