Market Structures sample essay
Each market structure plays a significant role in the economy. Markets are categorized according to the structure of each industry serving the market. Three of the basic market structures include competitive markets, monopolies, and oligopolies. These differ due to the different number of strength of buyers and sellers and also the level of collusion between them. There are stages of competition and magnitude of the difference in products. When there are many buyers and sellers of a product then neither firms are able influence prices, therefore making it competitive.
In competitive markets there are not restraints on firms going in and out of the market and buyers can purchase the same product or products from many sellers and get the same products. For example, potatoes are in the competitive market because consumers can find a potato farm that offers them at the lowest market price, and they can produce however much they want or as much as they can profit from at the going rate. There are many options for buyers because, with the knowledge, there is a lower price so they can always observe to find the best price. Lets say a good/product is $10 at the market price and a firm produces 10 units per day.
The total revenue for the day would be $100 ($10 x 10 = $100), but the marginal revenue with producing the eleventh unit per day would increase from $100 to $ 110 ( 11 x $10). However marginal cost do vary depending on the amount of goods produced. For example, a firm may increase input so marginal cost is equal to the market price. As long as the market price covers the variable cost there is incentive to stay in business, and possibly in the long run maximize profits (Jeffery Ely, 2012). So basically with a numerous amount of buyers and sellers in the market it creates competition and very little bargaining power for buyers and sellers.
There are usually not many barriers that exist within competitive markets because the exit and entry levels are low. For example, even though the market for making cars competitive the upfront capitol cost are high, which can create difficulty entering, or getting started. In some cases an exit barrier may exist if a large amounts of money is tied up in firm.
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