Unit 4 Business Environment Assignment Help
The third part of the assignment gives the definition and argues the four categories of the market types, they are: perfect competitive market, monopoly, oligopoly and monopolistic competition and how market structures determine the output and pricing decisions of businesses management. So, a perfect competitive market means that sellers and buyers their own decisions of selling or buying have no effect on the market price. This market can survive only if there is same kind of products, low exit and entry barricades and a real knowledge about product price, cost and quality. A monopoly is when a market has only one producer or seller of product; also when a market structure is dominated by few organisations is called oligopoly. Finally, monopolistic competition is a market structure which co-operates elements of monopoly and competitive markets. Basically, a monopolistic competitive market gives freedom of entry and exit; however, firms are able to differentiate their products. For that reason, they have an inelastic demand curve and can set prices; but because there is freedom of entry, supernormal profits, this will motivate more firms to enter the market leading to normal profits in long term. The monopolistic competition also referred to as the competitive market. The oligopoly market also known as a duopoly when only two firms exist in the market, but a monophony has only one buyer. All these types of market structures can be grouped into the perfectly competitive structure and the imperfectly competitive structure. The imperfectly competitive market structures are the oligopoly, duopoly, monopoly and the monopolistic competition. The market structures control how price and output decisions are done by the firms in their own structure. Most market structures, the basis goals are to maximize profits or minimize losses and the most important point is how price and output decisions making. Perfect or pure competition is rare in a real world, but the model is useful as it helps to analyse industries with similar feature to pure competition. Agriculture and stock market are examples can be taken as examples. The individual firm can take its demand as perfectly elastic. A perfectly elastic demand curve is horizontal line at the price. Not all firms make supernormal profits in the short run. Therefore, their profits depend on the position of their short run cost curves. On the other hand, some firms can experience sub-normal profits because their average total cost is more than the current market price. Many suppliers each with an insignificant share of market, this means that each firm is too tiny relative to the general market to affect price via a change in its own supply, so each individual firm is supposed to be a price taker. Consumers have adequate information about the prices all sellers in the market charge, so if some firms decide to charge a price higher than the ruling market price, there will be a huge substitution impact away from this firm. Also, there are presumed to be on barriers to entry & exit of firms in long run; this means that the market is open to competition from new suppliers, so this can affect the long run profits by each firm in the industry. The long run equilibrium for a perfectly competitive market happens when the marginal firm makes normal profit only in the long term. In the short run the equilibrium market price is influenced by the interaction between market demand and market supply. The firm can make a decision about how much to produce or what price to charge depends on how competitive the market structure is. For instance, if British Airways increases its ticket prices by 10%, there will be a small reduction in the quantity of tickets demanded. If the corner gas station raises its gasoline prices by 4% there will be a significant reduction in the gas demanded. For example, in a very competitive market like the local gasoline market, a single station has too little choice in what price to charge. In case that the station is busy there is no reason to lower the price, unfortunately, if it raises its price by 12 cents a gallon, it will have almost no customers. (RTBWizards.com. 2015)
The Equilibrium level in monopoly is that level of output in which marginal revenue equals marginal cost. The producer will continue producer as long as marginal revenue exceeds the marginal cost. At the point where MR is equal to MC the profit will be maximum and beyond this point the producer will stop producing.
In perfect competition market, the price is determined by the industry. Industry is a group of firms producing identical goods. The equilibrium price is determined at a point where the demand for and supply of the commodity of the industry are equal to each other. The process of price and output determination is shown through a table given below:
|Supply of output||Demand for output||Price (in Rs.)|
Table: Price and output determination under Perfect Competition
A monopolistic competitor, in the short run, is like a monopolist because it is the only producer of its unique product. But unlike a monopoly, the monopolistically competitive firm faces competition from other firms producing good substitutes for its product.
BTEC Level 4 HNC and Level 5 HND in Business (Pearson Education Limited 2009, page 10, 40, 47, 60 – 82)
Chad Brooks, 2012. What is fiscal policy? [Online] Available at <http://www.businessnewsdaily.com/3484-fiscal-policy.html> [Accessed date: 02/09/2015]
British Assessment Bureau. Writing Health and policy [Online] Available at<http://www.british-assessment.co.uk/articles/writing-a-health-safety-policy> [Accessed date: o5/09/2015]. Order Now