Market Structure and the Role of Government Economics Research

Market Structure and the Role of Government
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Market Structure and the Role of Government
Question 1
Perfect Competition: A perfect completion denotes a marker structure where many small firms are competing against one another. These firms have to produce the finest output level but at the lowest price possible per each unit (Satija, 2009, p. 203).
Monopoly: Monopoly denotes a market structure where a company has no competitors within its industry. Monopoly focuses on lowering output to increase prices and increase the profits. In so doing, it creates less optimal level at higher costs than the competitive firms (Satija, 2009, p. 203).
Oligopoly: This denotes an industry that consist of a few companies. The firms can collude or compete against one another. When they collude, this reduces the output and increases the profits like in a monopoly. In an oligopoly, there is no limit to the number of firms but they must be few enough such that the action of one firm significantly influences the others (Satija, 2009, p. 204).
Monopolistic competition: In a monopolistic competition, there are many competing firms in one industry where each has the same but slightly varied products. For instance, a restaurant meets this structure because they all serve food but the foods differ slightly. Further, the costs of production are so high that it would not be possible to achieve it if all these firms sold the same products (Satija, 2009, p. 203).
Question 2
In the long-run, new market entrants are witnessed in a monopolistically competitive market. This occurs because in most cases the firms gain positive economic profits within the short-run. Many firms are attracted by these economic profits and this allows them to enter into this market in the long-run. Additionally, a monopolistically competitive market does not have any barriers to entry and this gives room for new firms to gain entry in the long-run. When new firms enter this market, the supply of the differentiated products increases, which makes the firm’s market demand to begin shifting left. As the entry of new firms in the market grows, there is a continuous shift in the demand curve to the left up to a point where it just angles the average overall cost curve within the profits capitalizing degree of output as indicated in figure 1 below (Openstax, 2017). During this time, a firm’s economic profits remain at zero and this means that there is no longer any motivation for new entrants into the market. This shows that in the long-run, because of the competition that occurs as new entrant appear in a monopolistically competitive market, the firm only acquires normal profits as it happens in a perfectly competitive firm (Openstax, 2017).
 (Openstax, 2017).
Question 3
There are two main characteristics of public goods. One characteristic of a public good is that it is non-excludable. The on-excludability of this public good means that it is not possible to eliminate or prevent another individual from using it. This indicates that the good cannot be provided without it being able to be enjoyed by others. ...