Maximizing Profits in several Market Structures

A specific markets structure depends on a number of interconnected characteristics. These characteristic may include but are not limited to; degree of competition, product differences, simple entering the market, potential costs of exiting the market, and the general strength of buyers and/or sellers. The struggle, or competition, between organizations to be more profitable and efficient helps drive a healthy market. This paper intends to indicate the characteristics defining different market structures and their respective difficulties deriving from entering new markets. Additionally, each kind of market structure will be observed to observe how profit can be organically maximized.

Markets can be divided into specific categories. Some of such as; oligopolies, monopolies, monopolistic and perfect competition. An oligopoly is a kind of market that is managed by a little set of sellers. Characteristics of monopolies can consist of organizations that are able to control the price tag on a local good or service and lack of capitalistic competition. A perfect competition suggests a market that remains uncontrolled in conditions of price manipulation; this is because none of the organizations are efficient enough to create competitive pricing.

Price determined in each market structure

Price management is an organizations ability to control the prices of its goods or services. This indicates the range of competition organizations have within a specific target market. That is a strongly influencing factor on that market. Perfect competition and monopolistic competition structures contain many businesses in a single market. No-one firm holds a lot of the market share. Oligopoly structure occurs when few organizations are on the market. Monopoly exists when only 1 seller is present for a given product. A product type base element in market structure is non-price competition. The range of product distinctions is a determinant in this structure. Perfect competition, in this instance, would contain many organizations that sell similar goods. There are few differences between the products that these companies offer. In the monopolistic competition structure, the goods or services will involve some differences. In an oligopoly, the goods will involve some differences that will be more notable. Those in a monopoly will be, of course, yet, since they are all made by one firm.

Another non-price competition factor is advertising. In the perfect competition, each firm will produce the same goods. In this particular setting, non-price variations do not exist. Advertising can be used by monopolies, but it is not really required since there is absolutely no other supplier for those goods and services. Oligopoly structure companies use advertising a good deal. Monopolistic competition firms use advertising, but less so that oligopoly.

Entry barriers for new businesses into a given market help determine confirmed market structure. Perfect and monopolistic competition allow for relatively easy entrance into the market. In these cases, investment to become listed on is normally minimal. Barriers in such cases are believed to be low. In oligopoly, the entry barriers are very high. That is due to the dependence on considerable investment to join that market. Barriers aren't considered a factor in monopoly since any new firm in the market would change the structure automatically.

In capitalistic economies, the primary market structure is actually perfect competition. This structure will be used as a foundation for discussing the other types of market structures. Perfect competition exists whenever there are enough companies and sufficient demand to allow all businesses to just work at a productive level. This is considered impersonal competition.

The term perfect competition can be used because it is the utopian structure for all economic trade. It means that the consumer gets the right price for their purchase based on the firm requiring only a marginal cost of return for production of that item. The businesses are able to maximize their profits whenever they will keep marginal revenues above the industry marginal costs. Since many firms are contributing to the supply stream with the same items, the output in perfect competition is large enough to meet consumer demands.

Output determined in each market structure

In oligopoly, those pricing and outputs decisions are made not by the market but by the management. They are strategic decisions. The number of firms in that market is small. Which means that their decisions can have a wave of effects in the industry as a whole. Every one of these firms pays focus on the actions of others given that they directly affect each other so closely. When one firm changes it pricing structure or alters its output levels then the rival firms will see an effect on their own revenues. That is why strategic planning is undertaken. Scenarios are believed at all levels of the procedure to ensure that the management foresees as many possible outcomes of their actions. Firms in this structure have a tendency to keep their prices at similar ranges since it benefits all of them. This is the source of standardized pricing across a business.

In a monopoly, the firm can decide what price is beneficial to them. They will be the diametric opposite of the perfect competition structure. Since the monopoly is its own motivator, it can pick to cut output such that it can maximize profits. It has no competitor to hold it in check in its pricing. There is a single producer and supplier to the product or service. No substitutes are available to supplant their hold on that industry. The buyer who requires that one product must use that supplier irrespective of price. Barriers to entry are extreme since there is no non-price competition within this scenario. There may be no price takers in a market that is dominated by one supplier. Any firm who tries to enter the market will automatically change the structure to an oligopoly.

In monopolistic competition barriers may not exist to new firms, but there are both a multitude of buyers and a multitude of sellers. The companies offer products or services that have a notable difference from the other companies on the market. The companies devote a lot of their resources in making their products not the same as those of the other organizations in their market. The actual fact that businesses enter and exit from this structure freely means that the firms in a monopolistic competition structure will usually earn zero financial profit ultimately. Those monopolistic competition structure firms will usually produce output that will lead to their profits being maximized. This is also true in perfect competition structure firms. Monopolistic competition structure organizations also resemble the perfect competition structure firms, because they both follow the principle of maximizing profit. This means that that the firm will cut or stop production of their goods when they reach marginal revenues matching marginal costs. The distinction between these firm types is that the monopolistic competition structure firms are able to ply more control on the costs that they charge for his or her goods and services. This is because of the fact that the monopolistic competition structure firms have devoted considerable resources to making their product somewhat different and therefore unique from those of their competing firms. These companies have to consider their pricing carefully so that they do not push themselves out of the market altogether.

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