Term paper - micro eco Example | Topics and Well Written Essays - 1250 words

- micro eco - Term Paper Example The prices to be charged for the product are also negotiated in the market. The market structure is the term used to define the features of a market. This essay would provide a epigrammatic description of the general types of market structures in the economy. Situation Analysis This section of the essay would explain the different types of market structures: Perfect Competition This type of market structure is hypothetical in the real world at present. In a perfectly competitive market the number of sellers and buyers in the market are infinite in number. Since the number of sellers and buyers are infinite in number, the sellers and buyers are the ‘price takers’ of the products and the services in the market. Since the sellers cannot set the prices of the products, they try to maximize their business returns through the policy of revenue maximization. The types of the products sold by these sellers are homogeneous in nature. This is the reason for which the seller in thi s type of a market structure does not adopt the method of advertisement to sell their products. In the long run, all the sellers in this type of market structure enjoy normal profit (total cost = total revenue). ... Figure 2: Firms Demand in Perfect Competition (Source: McEachern 165) Since the product is homogeneous in nature, the price for every unit would be same so the sellers as shown in the above diagram would face a perfectly elastic demand curve (d). Figure 3: Firms Output Determination (Source: McEachern 173) The sellers in this market system would continue produce till the marginal cost curve would be >= the average variable cost curve. Thus the point 1 is the shut down point of the firms. This is a point in which the firm would only incur the fixed cost loss. This the portions of the marginal cost curve that a lie above the average variable cost curve is the supply curve of the perfect competitive sellers. Figure 4: Long Run Equilibrium (Source: McEachern 177) As shown in the above graph, in the long run all the firms would only enjoy normal profit. It would be at e, where the long run average cost curves (LRAC), average total cost curve (ATC), marginal cost curve (MC) and the demand or average revenue curve would intersect. Figure 5: Net Social Welfare Maximization (Source: McEachern 184) As shown in the above graph, the net social welfare is maximized in a perfectly competitive market structure, as it generates the maximum amount of consumer surplus. Monopoly Unlike perfect competition, the monopoly market structure is displays complete imperfect competition. In this type of a market structure there is only one seller and many buyers in the market. The single seller has the power to determine the price of the product of the service, thus a monopoly seller is a ‘price maker’ in the market. The monopoly seller may sell homogeneous or