Maximazing Profit
Assignment: Maximizing Profits in Market Structures Paper
XECO/212
University of Phoenix
The structure of a market is defined by the number of firms in the market, the existence or otherwise of barriers to entry of new firms, and the interdependence among firms in determining pricing and output to maximize profits. This paper covers the following: the advantages and limitation of supply and demand, the characteristics of each market structure, the barriers to entry and how organizations in each market structure maximize profits. Markets are the heart and soul of a capitalist economy, and varying degrees of competition lead to different market structures, with differing implications for the outcomes of the market place.
The goal of a firm is to maximize profits, to get as much for the firm as possible. In the perfect competition, each firm maximizes profits where marginal revenue (MR) equals marginal cost (MC). That is, the additional revenue from producing additional quantity equals the additional cost incurred in producing that quantity. At an output where MR is greater than MC, increasing production increases profits. If MR is less than MC, decreasing production increases profits. Therefore, MR=MC is the profit-maximization condition. In perfect completion, the price is a given for each firm, P=MR. This is because the fixed price per unit is the additional revenue the firm can expect to earn by selling additional quantity. The firm’s profit- maximization condition becomes P=MR=MC. In the long run, however, all costs are variable. All firms in a perfectly competitive market make zero economic profit in the long run, because if profit was being made, more firms would enter the market and market prices would decline until all firms made zero profit.
These elements are perfect competition, monopolistic competition, oligopoly, and monopoly. Based on the differing outcomes of different market
XECO/212
University of Phoenix
The structure of a market is defined by the number of firms in the market, the existence or otherwise of barriers to entry of new firms, and the interdependence among firms in determining pricing and output to maximize profits. This paper covers the following: the advantages and limitation of supply and demand, the characteristics of each market structure, the barriers to entry and how organizations in each market structure maximize profits. Markets are the heart and soul of a capitalist economy, and varying degrees of competition lead to different market structures, with differing implications for the outcomes of the market place.
The goal of a firm is to maximize profits, to get as much for the firm as possible. In the perfect competition, each firm maximizes profits where marginal revenue (MR) equals marginal cost (MC). That is, the additional revenue from producing additional quantity equals the additional cost incurred in producing that quantity. At an output where MR is greater than MC, increasing production increases profits. If MR is less than MC, decreasing production increases profits. Therefore, MR=MC is the profit-maximization condition. In perfect completion, the price is a given for each firm, P=MR. This is because the fixed price per unit is the additional revenue the firm can expect to earn by selling additional quantity. The firm’s profit- maximization condition becomes P=MR=MC. In the long run, however, all costs are variable. All firms in a perfectly competitive market make zero economic profit in the long run, because if profit was being made, more firms would enter the market and market prices would decline until all firms made zero profit.
These elements are perfect competition, monopolistic competition, oligopoly, and monopoly. Based on the differing outcomes of different market