This essay Economics has a total of 1052 words and 5 pages.
A monopoly is when there is a single seller of a product in the form of goods or services for which there are no close substitutes. Government policy in regard to monopolies can have major effects not only on specific businesses and industries but also on the economy and society as a whole. The word monopoly is derived from the Greek, meaning ?one seller?. A monopolized market is characterized by barriers to entry, which are restrictions on the entry of new firms into an industry. Because of these barriers, new firms cannot profitably enter the market. The three barriers are legal restrictions, economies of scale, and control of an essential resource. Because a monopoly supplies the entire market, the demand for a monopolist?s output is also the market demand. When it is cheaper for one firm to serve the market than for two or more firms to do so, that one firm is called a natural monopoly. Since a natural monopoly faces no competition, it maximizes profit by charging a higher price than would be optimal from society?s point of view.
Pure Competition, also known as perfect competition, is a market for a homogeneous product in which there are many producers and consumers, none of which are large enough to have any individual effect upon the market on their own. In other words, the market structure has fully informed buyers and sellers of standardized products and no obstacles to entry or exit of firms in the long run. These products are known as commodities. It is primarily used as a benchmark against which other market structures are compared. In theory such a market produces the largest output at the lowest price. In the real-world market there are few, if any; in the US the closest market is probably the agricultural industry. A perfectly competitive firm is so small relative to the market that the firm?s supply decision does not affect the market price.
An oligopoly is a market structure characterized by a small number of large firms that dominate the market, selling either identical or differentiated products, with significant barriers to entry into the industry. From the Greek, this word means ?few sellers?. Oligopoly dominates the modern economic landscape, accounting for about half of all output produced in the economy. Oligopolistic industries are as diverse as they are widespread, ranging from breakfast cereal to cars, from computers to aircraft, from television broadcasting to pharmaceuticals, from petroleum to detergent. Because there are so few firms, each one must consider the effect of its own actions on competitors? behaviors. Oligopolists are therefore considered to be interdependent. In an undifferentiated oligopoly a commodity, such as a barrel of oil is identical across producers. Whereas, in a differentiated oligopoly, we see product differentiation such as cereals and cars. The theories that are used to explain oligopoly behavior are: collusion, price leadership and game theory.
Monopolistic Competition is a market structure that contains elements of both monopoly and competition. Several or many sellers each produce similar, but slightly differentiated products. Because the products of different suppliers differ slightly, the demand curve for each is not horizontal but slopes downward. Each producer can set its price and quantity without affecting the marketplace as a whole. The firms that populate this market are not price takers, but price makers. Firms can enter or leave the market easily. Consequently there are enough sellers that they behave competitively. Sellers differentiate their products in four basic ways: physical differences, location, services and product image.
2. Talk about where Profit Maximization is and why
Profit Maximization is a process that companies undergo to determine the best output and price levels in order to maximize its return. Profit maximization occurs where marginal revenue equals marginal cost. The company will usually adjust influential factors such as production costs, sale prices, and output levels as a way of reaching its profit goal. There are two main profit maximization methods used, and they are Marginal Cost-Marginal Revenue Method and Total Cost-Total Revenue Method. Profit maximization is a good thing for a company, but can be a bad thing for consumers if the company starts to use cheaper products or decides to raise prices.
3. Compare Pure with monopolistic and oligopoly to monopoly (similarities)
With monopolistic competition, there are so many firms in the market that each behaves independently. A monopolistically competitive firm produces less output and charges a higher price
Topics Related to Economics
Economy, Economics, Imperfect competition, Market structure, Business economics, Monopoly, Microeconomics, Competition, Monopolistic competition, Oligopoly, Market power, Perfect competition, natural monopoly, homogeneous product, competitive firm, economy and society, market structures, market structure, agricultural industry, barriers to entry, oligopoly, monopolist, economies of scale, legal restrictions, monopolies, producers and consumers, government policy, world market, monopoly, buyers and sellers, commodities, benchmark
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