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(Solved) Market Structures - PDF

   

Added on  2021-06-16

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Running head: MARKET STRUCTURES1Market StructuresStudent’s nameProfessorCourseDate
(Solved) Market Structures - PDF_1
MARKET STRUCTURES2Question 1a.Perfectly competitive marketUnder perfect competition market, there is a freedom of entry and exit, all market playershave complete access to precise information, commodities are homogenous, and neither the buyer nor the seller has an advantage over other[ CITATION Hub16 \l 1033 ]. On figure one, MR = Price and also MR = MC. The allocative efficiency occurs at point A where the price matches themarginal cost. Figure 1: Allocative efficiency Cost/revenueQuantity b.Monopolistic competitive firms do not attain allocative efficiency because this market does not fulfill the condition for allocative efficiency, that is, the price should equal the marginal cost. Under this market structure, companies maximize revenue when the marginal revenue equals the marginal costs, though; this takes place at a lower output than in perfect LMCLACP=MR=ARPeQ1A
(Solved) Market Structures - PDF_2
MARKET STRUCTURES3competition[ CITATION Hub16 \l 1033 ]. On figure two below, a monopolistic competitive firm generates at point Q. At this point, the price is higher than marginal cost and thus allocative inefficiency.Figure 2: Monopolistic competition in long runRevenue/CostOutput Question 2a. Collusive oligopolies and allocation of factors of productionOligopoly firms can collude to determine the output levels or the prices with the aim of maximizing profits[ CITATION Joh151 \l 1033 ]. As a result, the output levels are often lower, and the prices are above market-clearing price. The colluding oligopolies behave like monopolies, and hence there are productive and allocative inefficient. PMCQMRD=ARMC=MRQ1MCAC
(Solved) Market Structures - PDF_3
MARKET STRUCTURES4In collusive oligopolies, the price surpasses the minimum average total cost, and thus firms are productive inefficient[ CITATION Joh151 \l 1033 ]. This means that in this market structure there is underutilization of resources, that is, excess capacity. On graph three, the collusive oligopolies maximize profits at output Q. if firms in this market were productive efficient, then the profit maximization output would be Q1. Moreover, if the firms in this market were allocative efficient they would operate at point U. The firms are running at a point where the marginal cost equals the marginal revenue and thus allocative inefficient. This scenario shows there is underallocation of resources. Figure 3: Inefficiencies in Collusive OligopolyRevenue/Costb.If a firm chooses to cheat, then other businesses will retaliate through price wars. Price wars will reduce the revenues of these firms and in worse cases other companies are likely to PMCQMRD=ARMC=MROutputQ1MCACExcess capacityU
(Solved) Market Structures - PDF_4

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