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Differentiating between Market Structures
The structure of a market is defined by the number of firms in the market, the existence or otherwise of barriers to entry of new firms, and the interdependence among firms in determining pricing and output to maximize profits. The author of this paper will cover: the advantages and limitation of supply and demand identified in the simulation, the effectiveness of the organization in which the author knows, and how the organizations in each market structure maximizes profits.
The simulation looks at all four types of market structure within the East-West Transportation Company. The four divisions operate within each of the four market structures. The divisions are Consumer Goods, Coal, Chemical and Forest Products.
The Advantages and Limitation of supply and demand
The first scenario, the author has to decide whether to continue operations or shut down operations. The author has decided to continue operations in the perfect competition market. In the scenario the market demand curve is downward sloping, each seller perceives the individual demand curve facing him or her to be perfectly elastic at a given price. Given this scenario this demand curve and the cost structures, sellers try to produce and output at maximized profit.
The second scenario has the author looking at the coal division, which operates in the monopoly structure. Tanya Roy pointed out that the law of demand holds in a monopoly. At a high price, quantity demanded is high and profit would not need to be high. For a monopolist, price exceeds marginal revenue. Thus, at the output where Marginal Revenue = Marginal Cost, you extend the quantity line to the demand curve to determine the pri ...