It occurs when there is: - Poor communication and management in a large firm - Demotivation of workers and thus loss in production - Lack of control over a large manpower spread across locations - Loss of management efficiency when the firm is large and operating in uncompetitive markets - Overpaid resources on higher packages with almost no differentiated product - Product stops being a star product for the firm and becomes a dog instead due to rise in competition, loss of market share and slow market growth. Companies tend to liquidate their assets in such case to stay alive. If a firm has constant input costs owing to factors mentioned above, then decreasing returns to scale simply suggests a rise in long run average cost and diseconomies …show more content…
2. Perfect competition and monopoly are two extremes of market structure. Evaluate the statement by analyzing contrasting features and equilibrium price and quantity determination process under these two types of market. Illustrate your discussion with the help of real world examples. Answer Structure a) What is market structure b) Perfect competition structure vs monopolistic structure: contrasting features c) Equilibrium price and quantity determination in perfect competition d) Equilibrium price and quantity determination in monopoly a) What is market structure Market is a place where sellers and buyers of a product are spread. It’s an area where a product is being sold to a set of buyers at a certain price. A market has a structure which is determined by the nature of competition in the market. Therefore, a market structure is decided by: - Number of sellers - Number of buyers - Their respective nature/type - Nature/type of product - Entry and exit conditions in the market - Economies of scale Perfect competition and Monopoly are two types of market …show more content…
In perfect competition, buyers and sellers are fully aware of the current market price of a product thus none buys or sells at an exorbitant price. Therefore, almost the same rate prevails hypothetically. Because of price discovery, transparency and open information, the market price of a product in a perfect competition is determined by the industry or the laws of demand and supply. - Law of Demand: Demand is the quantity consumers are willing to purchase at a particular price other factors being constant. Generally, demand is more when price is low and vice versa. As shown in the figure below, the demand was OQ at OP price which slips to OQ1 when price increased to OP1. Thus the demand curve is sloping downwards to right under perfect competition. - Law of Supply: It is the quantity a seller is willing to supply at a particular price. Generally, supply of a product is high at a higher price and vice versa. For example, in the figure above, the supply was OQ at OP price. When the price increased from OP to OP1, the supply increased to OQ1 indicating an increase in supply with increase in supply for the profit maximization intention of the
An oligopoly is defined as "a market structure in which only a few sellers offer similar or identical products" (Gans, King and Mankiw 1999, pp.-334). Since there are only a few sellers, the actions of any one firm in an oligopolistic market can have a large impact on the profits of all the other firms. Due to this, all the firms in an oligopolistic market are interdependent on one another. This relationship between the few sellers is what differentiates oligopolies from perfect competition and monopolies. Although firms in oligopolies have competitors, they do not face so much competition that they are price takers (as in perfect competition). Hence, they retain substantial control over the price they charge for their goods (characteristic of monopolies).
Perfect competitive and monopoly are the extreme of market structures. Therefore, the supply and price decision are totally difference between perfect competitive and monopoly.
Supply and demand is defined as the relationship between the quantity that producers wish to sell at various prices and the quantity of a commodity that consumers wish to buy. In the functioning of an economy, supply and demand plays an important role in the economic decisions in which a company or individual may make.
For example, it is extremely important for many firms to be involved in order to prevent and individual firm from profiting only. By having many firms we assure that only a small fraction of the total amount in the market is either sold or bought. Not only is having many buyers and sellers important, providing a standardized product, a commodity, is essential for this market type. A commodity will guarantee that the good or service being sold is roughly the same across all suppliers. Being highly mobile is another characteristic that a perfectly competitive firm must have. The firm needs to be able to relocate if suitable profits are not met. Full disclosure of price and availability is also crucial in a perfectly competitive firm. Buyers and sellers need to be aware of costs of products and services in order to secure that the deal they are obtaining is the best possible. In this type of market the barrier of entry is very low. Basically in order to enter and become a perfectly competitive firm the investor usually only requires sufficient financial capital and a license or permit. Perfectly competitive firms are price-takers. They are care price-taker characterized by accepting the price the market sets on their product or service, and have no control over the change of
A perfectly competitive market is based on a model of perfect competition. For a market to fall under this model it must have a number of firms, homogeneous products, and easy exit and entry levels into the market (McTaggart, 1992).
Perfect competition, also known as, pure competition is defined as the situation prevailing in a market were buyers and sellers are so numerous and well informed that all elements of monopoly
The law of demand states that if everything remains constant (ceteris paribus) when the price is high the lower the quantity demanded. A demand curve displays quantity demanded as the independent variable (the x-axis) and the price as the dependent variable (the y-axis). http://www.netmba.com/econ/micro/demand/curve/
In conclusion, generally speaking the Law of Supply states that when the selling price of an item rises there are more people willing to produce the item. Since a higher price means more profit for the producer and as the price rises more people will be willing to produce the item when they see that there is more money to be earned. Meanwhile the Law of Demand states that when the price of an item goes down, the demand for it will go up. When the price drops people who could not afford the item can now buy it, and people who are not willing to buy it before will now buy it at the lower price as well. Also, if the price of an item drops enough people will buy more of the product and even find alternative uses for the product.
A single firm or company is a producer, all the producers in the market form and industry, and the people places and consumers that an Industry plans to sell their goods is the market. So supply is simply the amount of goods producers, or an industry is willing to sell at a specific prices in a specific time. Subsequently there is a law of supply that reflects a direct relationship between price and quantity supplied. All else being equal the quantity supplied of an item increases as the price of that item increases. Supply curve represents the relationship between the price of the item and the quantity supplied. The Quantity supplied in a market is just the amount that firms are willing to produce and sell now.
A perfect competition market describes a market setting wherein the buyers and sellers are so numerous that the market price of commodity is no longer in control of either the buyers or the sellers.
A market structure are the characteristics of a market that significantly affect the behavior and interaction of buyers and sellers (Cabiya-an, 2014). This essay will describe the 4 market structures; perfect competition, monopolistic competition, oligopoly and monopoly. I will compare and contrast the market structures in relation to benefits and costs to the consumer and producer.
The market is known as “a group of buyers and sellers of a particular good or service” (Mankiw, 2012, p. 66). Everyone interacts with each other in a market in daily life. In general, markets can be classified into four types which are perfect competition, monopoly, monopolistic competition and oligopoly.
Monopolies have a tendency to be bad for the economy. Granted, there are some that are a necessity of life such as natural and legal monopolies. However, the article I have chosen to review is “America’s Monopolies are Holding Back the Economy (Lynn, 2017)” and the name speaks for itself.
Markets have four different structures which need different "attitudes" from the suppliers in order to enter, compete and effectively gain share in the market. When competing, one can be in a perfect competition, in a monopolistic competition an oligopoly or a monopoly [1]. Each of these structures ensures different situations in regards to competition from a perfect competition where firms compete all being equal in terms of threats and opportunities, in terms of the homogeneity of the products sold, ensuring that every competitor has the same chance to get a share of the market, to the other end of the scale where we have monopolies whereby one company alone dominates the whole market not allowing any other company to enter the market selling the product (or service) at its price.