Market Structures

Market Structures Simulation

Differentiating between Market Structures

In a perfectly competitive market the demand curve is perfectly elastic that is AR= MR= price here all the firms are price takers and not price makers the demand curve is horizontal straight line parallel. As regards the equilibrium condition the firm makes uses of marginal principle to find the best positive level of output. Then it uses the average condition to check whether the price for which this output could be sold covers the relevant measures of average cost.

The first simulation shows where in perfect competition, supply and demand work well to ensure that an efficient market outcome is reached. The company cannot gain excess profits by reducing output, become some other firm can easily take its place. The firms often face shutdown decisions, such as the one discussed, because business is so competitive.

The next simulation, the transport company has become a monopolist. It still faces the law of demand, in that it cannot set any price it wants and still sell the entire product it wants. Due to higher prices will result in fewer buyers, it instead can maximize profit by reducing output to the point where MP=MR.

The following simulation supply and demand are limited only if the two competing companies communicate. Were they to do so, they could strike a bargain which could deliver monopoly profits to both. However, cartels are unstable, and often one or the other firm is tempted to cheat.

In the last simulation, the company exists in monopolistic competition. There are other carriers, and to distinguish itself, the firm must offer additional perks. Even though additional costs may be incurred by investment in extra services, in the long run the company will garner additional profits from this investment. The forces of supply and demand in this market form are not sufficient to cause an efficient outcome in terms of resource...