How Government Affects Each Market Structure's Ability to Price its Products
One of the books to use for this paper is by Amacher, R., & Pate, J. (2013). Microeconomics principles and policies. San Diego, CA: Bridgepoint Education, Inc.
Please pay close attention to the details requested for.
You have been hired as a consultant by your local mayor to look at the various market structures. Your role is to provide analysis and answers to these important questions that will help the mayor understand the structures of many of the businesses in his city:
Describe each market structure discussed in the course (perfect competition, monopolistic competition, oligopoly, and monopoly) and discuss two of the market characteristics of each market structure.
Identify one real-life example of a market structure in your local city and relate your example to each of the characteristics of the market.
Describe how high entry barriers into a market will influence long-run profitability of the firms.
Explain the competitive pressures that are present in markets with high barriers to entry.
Explain the price elasticity of demand in each market structure and its effect on pricing of its products in each market.
Describe how the role of the government affects each market structure’s ability to price its products.
Discuss the effect of international trade on each market structure.
Your paper will need to include a title page, a reference page, and in-text citations properly formatted according to the APA style guide. Also, your content should be eight to ten pages, which does not include your reference or title page. You will need to include at least five scholarly sources from the Ashford Library in your paper as part of your research to support your analysis.
Writing the Final Paper
Must be eight to ten double-spaced pages in length and formatted according to APA style as outlined in the approved APA style guide.
Must include a cover page that includes:
Title of paper
Student's name
Course name and number
Instructor's name
Date submitted
Must include an introductory paragraph with a succinct thesis statement.
Must address the topic of the paper with critical thought.
Must conclude with a restatement of the thesis and a conclusion paragraph.
Must use at least five scholarly resources.
Must use APA style as outlined in the approved APA style guide to document all sources.
Must include, on the final page, a Reference Page that is completed according to APA style as outlined in the approved APA style guide.
Market Structures
Student's Name
Institutional Affiliation
Market Structures
This report is aimed at helping the mayor to understand the various market structures that are presented by the many businesses in the city. Oligopoly, monopoly, monopolistic competition and perfect competition market structures will be analyzed as well as their characteristics. One real life example of each market structure within the city will be identified. High entry barriers to each market structure and their effects on the long-run profitability and the competitive pressures within those barriers will also be analyzed to give the mayor understanding of each structure. Price elasticity of demand impacts the pricing of the products in the market thus the price elasticity of demand of each markets structure as well as the role of the government in influencing prices of products in each market will as well as be discussed. Finally, international trade will be the last component to be analyzed on its effects on the above mentioned markets structures. The analysis will allow the mayor to understand the various market structures that the various businesses within his City represent.
To have a full understanding of each market structure, it is crucial that each is defined and compared separately. Perfect competition will be the first one to be analyzed. A perfect competition or competitive market which is also referred to as pure or free competition market is a market structure where there are many firms that freely enter or leave the market at their own considering the prices of products at the market as the their information since each firm provides a small share of the product to the market and does not have any influence in the market. Therefore, free entry and exit into the market is one of its characteristics. The firms that want to enter as well as those that want to exit the market do not have to fulfill certain requirements. Homogeneity of products is another characteristic of this market structure. The firms in the market cannot influence prices in the market since buyers are many and are dispersed and thus cannot influence prices either. Firms in the market provide a relatively small share of the product in the market; they offer the same products with almost the same characteristics while others have no variations. This is why they are not able to influence market structures since the customers have a wide range of products that they can choose from. Therefore, market equilibrium is achieved because each firm is allowed to sell as many products as it desires at the market clearing prices and still manage to make a profit.
Monopolistic competition market structure is the second one to be analyzed. According to Amacher and Pate (2013), a monopolistic completion market is “an industry composed of a large number of sellers...these sellers offer a differentiated product, which is a good or service that has real or imagined characteristics that are different from those of other goods or services,†(Amacher & Pate, 2013). This definition suggests that the products offered in the market are differentiated and are of high quality than those that already exist or were previously offered. Also from the definition we get the characteristics of this market structure. There are many firms but each firm has a small share of the market. These firms offer differentiated products making it different from the perfect competition model. The products are differentiated in style, brand name, packaging, location, pricing strategies, and advertisement. The gas stations in the city are an example of this model. Chevron and Texaco companies claim that they have a better-quality fuel within certain addictives that can enhance the performance of a car. However, other companies such as Shell and BP offers the product with the same addictives may be at lower prices than those of Chevron and Texaco.
Oligopoly is the third market structure to be analyzed. This model exists where few large firms that produce a homogeneous but standardized or differentiated product dominate the market. Therefore, it is characterized by few but large firms in the market and they have a large share of the market. Examples include the cell phone service and airline industry. Both industries have several contenders that want to have the largest percentage of the market share.
Monopoly is the last model to be discussed. This model exists when a single firm is the only producer and provider of a product or service that has no close substitutes. There are barriers to entry and exit in that no firm is allowed to enter the market and exit of from the market requires certain procedures. Therefore, some of its characteristics include: a single firm; unique product with no close substitutes and barriers to entry and exit. This model controls the market or a certain region. Being the only producer and no close substitutes, many think that the price for the product can be set to anything that the firm will desire (Love, 1995). This is not the case since the firm will sell its product in a reasonable manner. It will determine a price that will be most beneficial for them and the customers to keep any competitors from coming into the market. The price that will be determined will allow the firm to make a profit in the long-run. Example of a monopoly firm is the utility companies such as the power company. There are no substitutes to what the firm produces and they are regulated by the government and they regulate the prices allowing the company to make a profit.
In the city, there are many examples and locations where real-life examples of the markets structures are grooming up in most of them presenting the monopolistic competition model. All of them tend to offer the same products and services that have substitutes and are competitively priced. Entry into this market structure is easy since there are no barriers and the price is controlled due to the many sellers of that product in the local market. This control of price is due to the comparable products that are easily substituted by the competition in the local market.
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