Week 5 Assignment

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1 Unit 5 Assignment: Market Structure Latoya Lacey Herzing University ECO111 ED KEIM February 13, 2022

2 Unit 5 Assignment: Market Structure The four basic market structures Pure Competition – is the first choice in market structure because it gives consumers the greatest consumer surplus and maximizes total surplus for the economy. Consumer demands determine the market price. This structure is made up of many small firms competing against each other. Many firms can enter the market because of the low barrier for entry and exit, but no single firm has market power. No supplier influences the market price, which puts price takers in place as the suppliers, so the industry produces an optimal output level. Supply and demand are the determinate of how many goods and services are produced, along with market prices set by the companies in the market ( A Guide to Types of Market Structures , 2017). Products are also identical to competitors. Pure competition is one of the most straightforward models to analyze, making it the first to be covered in dept. Some examples are agricultural products such as corn, wheat, or soybeans. Others could be stock or craft markets ( Market Models: Pure Competition, Monopolistic Competition, Oligopoly, and Pure Monopoly , n.d.). Monopolistic competition – is similar to pure competition in which there are many suppliers, and the barriers to entry are low. The slight difference is the basis for the firm's marketing and advertising strategy. They're made up of many small business firms competing against each other, selling similar but highly different products. The suppliers aim to achieve price advantages by differentiating their products from others close to the same. The difference is seen as style, brand name, packaging, location, advertisement, and so much more. They try to make their products seem better, so they can justify the high prices being charged or increase market shares.

3 Although they can charge higher prices within a certain range, their lowest possible cost of production leads to optimal output in the market structure. Producers can freely enter the market when the profits are attractive because there's easy entry and exit ( A Guide to Types of Market Structures , 2017). A few examples of monopolistic competition are fast food restaurants, clothing stores, beauty salons, spas, and so forth. This market is most attractive for producers because of the advantages mentioned. Oligopoly is a market structure dominated by few suppliers, resulting in limited competition. It is very difficult to enter this market. Their prices and outputs are based on strategic decisions. There is a high barrier to entry which causes a limited number of suppliers to compete, allowing the firms to have a considerable influence on the market price of their products. To change prices, they must consider the other firm's action because they tend to neutralize any changes that affect their market shares. They can either co-exist or compete against each other using their collective market power to drive prices up and earn more profits. Some of the most powerful companies in this market have control over patents, raw materials, and financial and physical resources that create entry barriers ( A Guide to Types of Market Structures , 2017). This is also the cause of high prices. When prices are too high, buyers will generally head to a substitute in the market. Examples of an oligopoly structure are video games, Microsoft, Sony, Nintendo, and some other examples such as automobiles and gasoline. Price, profits, and production level changes as the relationship of sellers and buyers do ( Market Models: Pure Competition, Monopolistic Competition, Oligopoly, and Pure Monopoly , n.d.)

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4 Pure monopoly – has the highest pricing power in the market because a single firm controls it. There is only one supplier with significant power to determine the price of its products, giving them a full advantage over all other markets. They face little to no competition because of the high barriers to entry, such as initial cost or the effect they have on networks through market influence ( A Guide to Types of Market Structures , 2017). They are the sole producer of the product with no close substitutes. Unlike other markets, the entry to enter or exit is blocked. That's why there’s government regulations for natural monopolies. It's hard for new firms to compete because it would be incredibly expensive to reach such a scale in that short amount of time. They also reduce output to increase prices and earn more profit. Some examples are public utilities and professional sports leagues ( Market Models: Pure Competition, Monopolistic Competition, Oligopoly, and Pure Monopoly , n.d.).

5 References A Guide to Types of Market Structures [Webpage]. (2017, November 28). AU online aurora University. https://online.aurora.edu/types-of-market-structures/ Market Models: Pure Competition, Monopolistic Competition, Oligopoly, and Pure Monopoly [Webpage]. (n.d.). This Matter. Retrieved February 13, 2022, from https://thismatter.com/economics/market-models.htm

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