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Market Structures Analyses - Essay Example

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Summary to essay on topic "Market Structures Analyses"
Chapter 25 of The Grapes of Wrath speaks about the Californian land owners and their crops during the spring. There are cherries, oranges, peaches, pears and grapes everywhere and the earth smells of ripe and fresh fruits. The owners stand by and calculate their profits for that year…
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Download file "Market Structures Analyses" to see previous pages... The producers can't afford the labor without selling their crops. Their debts build up and their crops are left to ruin.
In a perfectly competitive market, there are many buyers and sellers and therefore no individual player can influence the market as a whole. Hence the firms become "price takers" by accepting the price determined by the intersection of the demand and supply curves.
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Therefore the firm's demand curve is perfectly elastic and price equals marginal revenue as shown in the graph.
Individual firms cannot increase prices due to the competitiveness of the market and the highly elastic demand curve. Hence there are normal profits to be gained for the producers. The products are homogenous and therefore the buyers are indifferent as to which firm they purchase from. There are no barriers to entry or exit; hence firms can enter and leave the industry with no cost liabilities. In such a competitive environment, there is maximum efficiency and competent allocation of resources with minimum wastage.
A trace of monopolistic competition is found in chapter 13 of the book where the Joads stop to fill gas at a gas station. The owner of the station is characterized as a crushed man, one who is afraid of the change that the world around him has embraced. He talks about how he sees cars move west all day and the only ones that stop in his station are the ones that have no money. They exchange beds, baby buggies, pots, pans, dolls, even shoes for the gas. The rich cars, however, stop only at company stations in town. He refers to these stations as the yellow painted ones in town. We also notice how the owner tries to imitate the company stations with the yellow paint but fails because of the loose hangings and the old cracks in his beaten old station.
Monopolistic competition or imperfect competition is relatively similar to that of perfect competition except that the products are not homogenous. There are large number of players in the market, but due to differentiation of products, each individual firm has a small market share and a limited ability to influence prices. In this market, the barriers to entry are very small and there is sufficient product knowledge among the consumers.

Product differentiation, which is the characteristic of monopolistic competition, creates a difference between products by deeming them similar but not identical. The product of one producer can be differentiated from that of another. A competitive producer uses non price competitive methods such as advertising, packaging, brand names, design to differentiate his products. There are substitutes in the market but they are not perfect substitutes.

Firms have some control over prices, but the demand curve remains downward sloping and elastic. The producer aims at maximizing his profits by charging as much as he can over and above the output where his marginal revenue and costs
equal, without compromising his sales. In the long run, however, new entries will shift the demand curve and the cost curve, thereby squeezing the profits.



Oligopoly
Chapter 19 narrates the ...Download file "Market Structures Analyses" to see next pagesRead More
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