Economics for Managers - Question and answer

Running head: Economics for Managers
Economics for Managers
Name of the Student
Name of the University
Student ID

Economics for Managers1
Table of Contents
Answer a..........................................................................................................................................2
Answer b..........................................................................................................................................6
Answer c........................................................................................................................................10
Answer d........................................................................................................................................12
References......................................................................................................................................15

Economics for Managers2
Answer a
In an economy there are four types of market structures and any company or firm
participating in the economy relates to any of these four market structures. The types of market
structures are perfect competition, monopoly, oligopoly and monopolistic competition (Bertoletti
& Etro, 2016). The market structures are different from each other in their characteristics. From
social welfare and consumers’ perspective perfect competition is the most suitable market
structure, whereas from the producers’ perspective monopoly is the best market structure. The
other two that is oligopoly and monopolistic competition shows market characteristics that move
around between the characteristics of monopoly and perfect competition market structure
(Kirzner, 2015). In the following paragraphs detailed discussion on the four market structures
have been made to give clear overview of all the market structures.
1) Perfect Competition: In perfectly competitive market structure there are unlimited numbers of
sellers and buyers. Thus, none of the buyer or seller has the power over the market and therefore
the price and supply and demand equilibrium is determined by the free market forces. The
market structure is characterized by free entry and exit, that means any firm willing to enter or
exit the market can do so without accruing any significant threat or loss. From perspective of the
market any exit or entry does not affect the price, demand and supply because the players of the
market does not depend on each other for price and output decisions. Apart from that, the
resources allocated efficiently in this market structure and therefore there is no loss in consumer
surplus, producer surplus and social welfare (Chen et al., 2016). The graphical illustration of the
market is given figure 1. The equilibrium price and quantity in the perfectly competitive market
is given in the below diagram as P* and Q* respectively. In perfectly competitive market firms

Economics for Managers3
earn zero economic profit because free entry and exit allows new firms to enter the market
anytime (Bhattacharjee, Dana & Baron, 2015). Thus, whenever the firms in the market earn
supernormal profit new firms enter the market and increases the demand of the factors and price
firms in order capture the market lowers price and ultimately charges the price at which the firms
ear zero economic profit. An example of perfectly competitive market is fruit market as it depicts
all the characteristics discussed above.
Figure 1: Perfect Competition
Source: (Created by the Author)
2) Monopoly: In monopoly market structure there is only one seller and unlimited buyers.
Therefore, the sellers has power over the market and can set any price to it wishes to maximize
its profit. This happens because in monopoly market seller has control over the raw material or
exclusively manufacture in its own facility and produces unique good which is not sold by any
other seller and thus giving no option to the buyers other than depending on the single seller
(Zeuthen, 2018). The huge cost of establishment and production cost and restriction by the
existing firm creates entry and exit barrier in the market. Tenaga Nasional Berhad is an